Market Pulse - November 2023

Market Pulse

November 2023

Knoxville ranked No. 4 among the top 100 metros for home price growth in Q3 2023, with home prices growing 11.6% from the previous year, according to new data from the FHFA.
According to Realtor.com's 2024 forecast, home sales in Knoxville are expected to fall 5.9% while home prices are expected to grow 7.2% next year. East Tennessee REALTORS® will release its annual forecast early next year.
Apartment rent growth accelerated for the second consecutive month in October, with rents across the Knoxville MSA increasing by 4.14% from the previous year compared to 0.09% nationally.
The University of Tennessee's student housing market ranked No. 11 nationally for rent growth in Fall 2023, with rents up 15.9% from the previous school year.
East Tennessee REALTORS® Government Affairs and Policy Director Hancen Sale recently shared his insights on the need for zoning and land use reforms with the Knoxville News Sentinel. Read the op-ed here.

Home Sales Report

October 2023

East Tennessee home sales increased — up 1.0% from the previous month but down 6.6% from a year ago. Home sales are down 16.1% YTD.
The median home sales price was $350,000 — up 11.1% from the previous year.
Total housing inventory declined from the previous year – down 2.6% from a year ago.
Half of the homes sold were under contract in 12 days or less, up from 11 days the previous month but down from 14 days a year ago.
26% of homes sold for more than the asking price, unchanged from the previous month, with 12.3% selling for at least $10,000 over asking and 3.4% selling for at least $25,000 over asking.
The Sale-to-List Price Ratio declined to 98.6% – down from 97.9% last month.
New construction represented 11.5% of total home sales.

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

After stalling earlier this year, home price growth across East Tennessee accelerated once again in the third quarter. According to FHFA data, house prices in the Knoxville MSA increased 11.3% over the past year in Q3 2023 – the 4th fastest growth among the top 100 U.S. metros and more than twice the national average of 5.5%. By comparison, Nashville saw home prices fall 0.1% during the same period while Memphis experienced nominal growth of 2.0%.

What's the Outlook? Home sales across East Tennessee rebounded in October as additional inventory hit the market, underscoring the persistent demand for homeownership. Despite the highest mortgage rates in more than two decades, home prices continue to rise at a strong pace. Though overall housing market activity remains relatively subdued due to limited inventory and low housing affordability, market conditions are likely to improve moving into 2024

Knoxville's Student Housing Market Experienced 11th Fastest Rent Growth in the U.S.

Rent growth in purpose-built student housing hit record highs across the U.S. over the last year – and Knoxville was no exception.

As of September – the final month of the Fall 2023 pre-lease season – annual effective rent growth for student housing in Knoxville rose to 15.9%, according to RealPage Market Analytics. This figure amounted to the 11th fastest year-over-year rent growth nationally and the second fastest among southeastern universities.

The especially large rent increases among purpose-built student housing units can be attributed to robust enrollment growth at the University of Tennessee, which created a sizable gap between supply and demand evidenced by the 100% occupancy rate for Fall 2023.

ISSUES IN HOUSING:

Rent Control

Housing costs continue to rise across East Tennessee, with many renters left to absorb significant rent increases. With fighting rising rents at the forefront of the political conversation in many areas, there has been a renewed interest in rent control policies. While rent control laws differ by location, they generally include limitations on rent hikes during and sometimes after a tenancy, along with various eviction restrictions.

The cost of living crisis in East Tennessee cannot be overlooked. Knox County, for example, is a saturated market and was reported as the number one metropolitan area for rent increase in 2022. The lack of affordable housing in East Tennessee is largely due to an increased demand without a substantial increase in supply. As we are finally seeing rent growth begin to moderate and we have a historic number of rental units under construction, this positive direction could be halted with a policy such as rent control.

Though championed by activists as a fail-safe way to support renters and decrease the cost of living, research indicates that, while rent control may initially benefit existing tenants in the short run, such policies ultimately reduce long-term affordability, promote gentrification, and have adverse effects on the nearby community.

Reduced Housing Supply and Quality: One of the most significant consequences of rent control is its impact on the housing supply. Landlords, facing restrictions on potential income, may be less inclined to invest in new housing developments. This is especially true for "mom-and-pop" property owners with limited resources. Additionally, the profitability of maintaining existing units decreases under rent control, leading to potential neglect and a decline in the quality of housing.
Market Distortion and Misallocation: Rent control distorts the housing market in fundamental ways. It can lead to a misallocation of housing, where units are not necessarily occupied by those who need them most. For instance, rent-controlled apartments might be occupied by higher-income tenants who would otherwise move, thereby reducing availability for lower-income individuals.
Fueling Gentrification: Contrary to its intentions, rent control can inadvertently fuel gentrification. By making certain areas more affordable in the short term, they become attractive to a broader demographic, including those with higher incomes. As these individuals move in, the character and affordability of the neighborhood can shift, potentially displacing long-term, lower-income residents.

In San Francisco, for example, rent control was unexpectedly implemented in 1994. When implemented, San Francisco's rent control policies limited renter mobility by 20% and reduced rental housing supply by 15%. This decrease in supply led to an overall increase in rent across the city, highlighting the impact a decrease in supply can have on affordability.

Overall, while offered as solutions, there is mounting evidence that rent control and other anti-gentrification rules aren't the solutions they are hoped to be. Instead, the solution to the current housing crisis, and specifically the saturated rental market, is to increase supply, which requires zoning and land use policies that allow for smart and functional development.

Take a deeper dive into the issue with Rent Control from the National Association of Realtors, The Pros And Cons Of Rent Control For Landlords And Tenants in Forbes, No Balconies or Luxury Toilets: How This City Fought Soaring Rents and Lost in the Wall Street Journal and The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco in the American Economic Review.

Housing inventory rose over the past month across most of the East Tennessee region, a typical seasonal uptick. As of the end of November, active listings across the region were up 8.7% from the previous year. 10 of the 12 counties covered by the East Tennessee REALTORS® Multiple Listing Service recorded month-over-month increases in available inventory from October to November 2023.

Despite considerable uncertainty stemming from inflation and tighter financial conditions, Knoxville's labor market continues to thrive. According to the latest data release from the Bureau of Labor Statistics (BLS), Knoxville ranked among the top 10 U.S. metros for annual job growth in October. According to an analysis by RealPage Analytics, Knoxville's total employment base grew by 3.7% in the year ending October 2023 – well above the metro's average of 1% from 2000 to 2029.

"Prospective home buyers experienced another difficult month due to the persistent lack of housing inventory and the highest mortgage rates in a generation. Multiple offers, however, are still occurring, especially on starter and mid-priced homes, even as price concessions are happening in the upper end of the market."

– Lawrence Yun, Chief Economist at NAR

Mortgage Rates Falling as

Inflation Continues to Subside

After surging to a two-decade high this fall, mortgage rates fell precipitously throughout November. According to Freddie Mac's Primary Mortgage Market Survey, the 30-year fixed mortgage rate (30Y FRM) averaged 7.22% for the week ending November 30th. By comparison, the 30-year fixed mortgage rate averaged around 6.49% this time last year.

What's the Outlook? While uncertainty abounds and the economy continues to outpace expectations, recent inflation data support a more optimistic economic outlook, and mortgage rates are likely to moderate with the Federal Reserve declining to pursue another rate hike at its Oct. 31-Nov.1 meeting. With inflation falling at a gradual pace, policymakers are poised to hold rates higher for longer and rate cuts are likely out of the question in the near term.

IN THE NEWS

Stay up-to-date with the most recent information about East Tennessee's housing market. Here's the latest from local media:

Teknovation.biz: How Knoxville’s housing crisis impacts young professionals

WBIR: Nearly half of all renters in Knox County considered 'cost-burdened' because of rent prices

WVLT: Return of student loans might be a concern for potential homeowners

WUOT 91.9 FM: Knoxville needs more housing, but rezoning for the missing middle proves challenging

Knox News: Addressing Knoxville's housing crisis will require leaders' political courage - Op-Ed by Hancen Sale, Government Affairs and Policy Director

EAST TENNESSEE REALTORS® CORPORATE ALLIES

The Corporate Ally Program (CAP) is an advocacy partnership between corporate entities and East Tennessee Realtors® that gives our real estate business partners the ability to invest corporate dollars to strengthen the industry and support issue campaigns. For more information or to become a Corporate Ally, contact Catrin at catrin@etnrealtors.com.

GOLDEN Ally