Market Pulse - May 2025

As spring comes to a close, inventory is growing and price growth has stayed in the single digits, which is exactly what we need for future affordability. But the market recovery has been more protracted than we predicted; to meet our forecast of a healthier annual 8.7% sales and 2.9% price growth, we may need a catalyst such as reduced mortgage rates.

April home sales were sluggish for East Tennessee at an 8% drop from last year, and national home sales marked a 7-month low according to the National Association of REALTORS® (NAR). According to the National Association of Home Builders (NAHB), multifamily permits have dropped and builder confidence is still low, raising the possibility of falling further behind on rental inventory for our middle-class residents.

While we would all prefer a more dramatic market recovery, the positive increase in existing home inventory, pending listings, days on market and months of supply show that stability is returning and should continue to improve throughout the summer. This newsletter takes a deep dive into inventory updates and the resulting outlook.

Home Sales Report

APRIL 2025

East Tennessee home sales in April were flat, dropping 0.5% over the previous month.
The median sale price was $375,000 — up 6% from the previous year.
Total housing inventory has increased 25.6% from the previous year.
Half of the homes sold were under contract in 24 days or less, up from 18 days a year ago.
46.1% of homes sold for the asking price or above, with 21.4% selling for more than the asking price. 8% sold for at least $10,000 over asking and 2.8% sold for at least $25,000 over asking price.
The sale-to-list price ratio increased to 99.2% – up from 98.1% a year ago.
New construction decreased to 14.4% of total home sales.

East Tennessee REALTORS® reports home sales data using a seasonally adjusted annualized rate (SAAR). This method takes into account seasonal fluctuations in the real estate market, such as increased home sales during the spring and summer, by adjusting the data to provide an annualized rate representing the projected number of homes that would be sold over a year if the current sales pace were to continue.

What's the outlook? April sales were unseasonably slow, dropping 0.5% from March. This reflects the national market, which hit a 7 month low according to the National Association of REALTORS®.

Why are sales still slow when existing home inventory continues to trend upward? Two main drivers are consumer spending hesitancy, and the type and quantity of available inventory. This is a challenge in most economically healthy/growing areas of the country, and East Tennessee is a perfect example.

We've frequently touched on consumer spending hesitancy in the last few months, which continues to be a national issue driven by economic fears and perception of inflation. While this is one of the biggest hindrances to home sales, it's not one we can affect here.

It's not just a quantity issue:

Does our inventory match our buyers?

Let's talk about a more local challenge: the type and quantities of inventory available is both low AND a mismatch for the needs of buyers. First, we must keep in mind that while the year-over-year increase is impressive, we only just surpassed 2019 levels of inventory at the beginning of the year. This doesn't provide for the increase in population, nearly 50,000 people in the 9-county Knoxville metro area alone in the last 5 years.

As of this writing, there are 6,804 listings available in the East Tennessee REALTORS® multiple listing service (MLS). Using today's mortgage rate and a 10% down payment, the median household income of about $67,000 for the Knoxville metro would allow a family to afford a $275,000 home. Of the available listings, only 17% fall within this price range. Half of potential home buyers are potentially competing for less than one fifth of the available inventory.

Additionally, we are oversupplied in large single family homes that are priced out of reach for many residents. Home sizes have been affected beyond consumer demand by external factors like rising costs of building, local policies and pressure from community members on developers. During the public review process in East Tennessee, planned density is often reduced in favor of large lots that drive up home prices.

What if you are aging and want a smaller home under 2,000 square feet on a $275,000 budget? Only 12% of the listings fit the bill. On the opposite side of the consumer spectrum, let's assume you are a young family with children and need 3 bedrooms. Only 9% of the available listings fit this need in your budget. As shown in this example, affordability and variety of inventory continues to be a challenge.

There's reason to be optimistic:

Builders and developers are aware of the inventory mismatch and actively working to find creative solutions to supply attainable units.

Inventory by county: As a brief exercise this month, we've shown below the number of listings in each county that would fall within budget for the metro region's median income as calculated above. This is a simplified comparison because several of these counties fall outside the 9-county Census metro region, but it gives a sense of where homes are more attainable.

Blount and Loudon counties, where growth mitigation policies such as multifamily building moratoriums, impact fees and increased lot size zoning have been broadly enacted in recent years, have dramatically lower inventory of attainable listings.

NAR & Realtor.com estimate that Knoxville metro currently needs at least 10,500 more homes

NAR and Realtor.com recently teamed up to share data and estimate housing needs in each metro area. Nationally, middle and upper-middle class buyers have seen the most improvement, while lower income buyers have seen their inventory need grow and are increasingly being priced out of the market.

The below study used one month's worth of active listings from March 2025 to get a more accurate snapshot of demand in the Knoxville metro area, which includes Anderson, Blount, Campbell, Grainger, Knox, Loudon, Morgan, Roane and Union counties.

The good news: Our region was ranked "misaligned but not at crisis levels." The bad news: The researchers estimated that we need an estimated total of 10,536 homes right now, not taking into account any future population growth.

"These areas are stuck in the middle, struggling to keep up with demand, showing signs of progress, yet still falling short of offering real affordability to most families."

Unsurprisingly, the income brackets who need the most additional homes were in the lower to middle-class range. However, the higher income brackets weren't left out: NAR and Realtor.com estimated that East Tennessee needs about 3,602 additional homes for those making $100,000 or more annually.

This is a large number especially considering that it's a one month snapshot, which doesn't take into consideration other factors such as continuing population growth or the looming imbalance of seniors aging out of independent living.

However, the outlook for our area invites optimism as it shows that hard work of advocates, elected officials and community leaders to increase affordable housing and diversity of housing has begun to pay off. We just have to keep going and ramp up the speed of our efforts!

"We are at a turning point. The increase in inventory presents a real opportunity - but only if we ensure that future housing-supply growth is aligned with actual housing demand.

This means supporting zoning reform, expanding down-payment assistance, removing barriers to entry-level construction, and investing in solutions that reflect the financial realities of today’s home buyers."

While the NAR study calculated homes needed per income bracket, a reader can make a few assumptions to understand what that means for home prices. For example, using today's mortgage rate and assuming a 10% down payment, a family making $35,000 per year would be able to afford a $135,000 home. We need 1,167 more of those today.

Read the full report here

Are homes getting bigger or smaller?

As we grapple with questions about the right type of inventory, a significant driver of prices is the size of single family homes being built. Two separate articles were released within days of the Q1 starts and completions becoming available: The Wall Street Journal shared the mixed take that smaller homes are being desired and built in bigger numbers than ever, but most homes are still unaffordable.

The National Association of Home Builders shared that according to the Q1 data, the actual size of homes built in reality is the highest it's been in nearly two years.

Both of these things can be true: builders and developers see the need in the market for smaller, more affordable units and are doing their best to accommodate, while overall the economics of material cost and lot size still often result in a majority of larger homes.

The below visualization of Census and HUD data shows the size of completed single family homes over time. To provide historical context, 2015 marked an all-time high at a median of 2,488 square feet. Homes began to get smaller for affordability, until the pandemic resulted in consumer demand for larger functional spaces at home.

U.S. Census Bureau and U.S. Department of Housing and Urban Development, New Privately Owned Housing Completions in the United States, Median Square Feet of Floor Area for One-Family Units [COMPSFLAM1FQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/COMPSFLAM1FQ, May 27, 2025.

Several groups of consumers are competing for what we would traditionally call a "starter home," a favorite Realtor.com study defining it as 1,850 square feet or under that is affordable for the median family income. For example, NAR defines a starter home as 85% of the median sale price of an area.

The Wall Street Journal graphic shows that nationally, the family income needed to purchase a "starter home" is now over $100,000 per year.

Three groups of consumers are looking for these homes, which are already a small portion of the market's supply: first-time buyers truly seeking their first investment, a growing group of seniors hoping to downsize and the lower end of the income scale whose buying power dictates less square footage.

So why have homes bounced back in size over the last couple of quarters? Neither article comes to a conclusion, but we can guess based on local trends that economic uncertainty, increasing costs, a reluctant buyer base and anti-growth policies have driven builders to increase home size and price to keep up.

As we saw in NAR's inventory analysis, many more homes are needed for the lowest and middle income brackets, and based on today's costs that means a smaller "starter home."

More Listings, Fewer Closings:

Is a Market Shift Underway?

Sales of existing homes slowed last month, dimming hopes for a robust spring selling season. Despite the highest number of listings in years, buyers remain cautious.

“Home sales have been at 75% of normal or pre-pandemic activity for the past three years, even with seven million jobs added to the economy. Pent-up housing demand continues to grow, though not realized. Any meaningful decline in mortgage rates will help release this demand.” Read the article here.

– Dr. Lawrence Yun, Chief Economist at NAR

Mortgage rates hold steady

According to Freddie Mac's Primary Mortgage Market Survey, the 30-year fixed mortgage rate (30Y FRM) was holding steady at 6.86% as of the week ending May 22 compared to 6.94 one year ago. On Memorial Day, FHFA Director Bill Pulte publicly pressured the Fed (in a social media post) to lower interest rates in favor of housing. Fed chair Jerome Powell has continued to resist making what he felt were reactionary policy changes during a period of uncertainty, noting that consumers should expect longer-term rates to stay higher during this time.

All that to say, a substantial mortgage rate drop would inject immediate life into home sales, but we aren't holding our breath.