Chattanooga housing cheaper than US average, but rising costs force more young adults to live with parents

Staff photo by Erin O. Smith / Bert Ingram, a carpenter with Antidote PC, cuts pieces of wood while constructing a porch on a North Chattanooga home last year.

More than one in five young adults are still in their parents' home, reflecting changing living patterns and difficulties for many student debt-burdened persons trying to afford the rising cost of homeownership, a top housing economist said Wednesday.

Robert Dietz, chief economist for the National Association of Home Builders, told local home builders and Realtors that the price and availability of new housing remains a challenge to many first-time home buyers, although homes are more affordable in Chattanooga than in most of the country.

According to the U.S. Bureau of Census, the share of persons age 25 to 34 years old living with their parents grew from 13% in 2005 to an estimated 22% in 2017.

photo Contributed photo / Robert Dietz, chief economist for the National Home Builders Association

"If you go back 20 years ago, about one in 10 people age 25 to 34 years old lived with their parents, but today it is more than one of every five," Dietz told the Greater Chattanooga Realtors and the Home Builders Association of Chattanooga during the groups' annual economic outlook luncheon. "If you have a young adult child who is basically a tenant in your home, you are not alone - there are millions of others such persons and a lot more multi-generational households today. This appears to be a fundamental change in how we live because we have continued to see this increase even as economic conditions have improved."

As a result, the U.S. homeownership rate, which reached a peak of 69.2% in 2004, fell to just over 63% by 2016 and is now estimated at 64.8%.

Dietz said the homeownership rate in Chattanooga remains above the U.S. rate and is now estimated at 67.6%.

"This is one of the faster growing parts of the United States, but like other more rapidly growing areas there are relative housing affordability challenges," Dietz said. "We in the housing industry often celebrate rising home prices, which certainly helps builders' profit margins and is good for homeowners. But when home price growth is faster than income growth, it's a sign of lack of supply, lack of inventory and ultimately declining housing affordability."

Dietz said increases in student debt and automobile loans play an important role in young adults' decisions to stay with their parents. In the past decade, the volume of student debt has more than doubled while auto loans are up 63%. Mortgage and credit card debt is up only 3 % since 2009, according to data compiled by the Federal Reserve Bank of New York.

Economic impact of home building

The economic gains from the 1,479 homes built in metro Chattanooga this year:* 2,243 jobs, including 1,650 in construction, 297 in wholesale and retail trade and 158 in business and professional services* $15.2 million in local taxes* $116.5 million in local wages* $176.8 million in total local incomeSource: National Association of Home Builders estimates for first year impact from 1,479 homes built this year in metro Chattanooga

A study this year by the Urban Institute found that the most prominent trend among young adults is a delay of their first marriage.

"Because single adult children are more likely to live with their parents than those who are married, this is the single largest explanatory factor in the increase of adult children living with their parents," said Jung Choi of the Urban Institute.

The median age of Americans at first marriage has increased steadily for the past four decades, and the marriage rate dropped from 59.4% in 1990 to 40.2% in 2017 and is likely to decline even more. Those who never married increased by almost 25 percentage points, from 29% to 53.4%.

Although adults are delaying marriage and families, Dietz said most Americans still want to ultimately own their own home.

"We make a huge mistake if we confuse the lack of means with the lack of wants," he said. "The underlying demand for homeownership remains in place. The idea that all people just want to stay with their parents or live in apartments in just wrong."

From the previous peak price levels reached a decade ago before the Great Recession, Chattanooga home prices are up 25%, outpacing the U.S. growth of 17% in average home prices in the same period, Dietz said. Such home price increases outpaced income gains, although the average Realtor-assisted home sale in Chattanooga is still priced nearly 30% below the national average price.

"Whatever regulatory issues or lack of available land concerns that may exist, the fact that those home prices are growing as fast as they are is a sign of the need for additional inventory," Dietz said, estimating that Chattanooga home builders will add 1,479 more houses in the metro area in 2019.

Dietz estimates that for the average U.S. home, regulatory costs from building codes, land use policies, environmental rules and other regulations boost the cost of a typical home by 24.3%, including 14.6% during development and another 9.7 during construction. The NAHB estimates that regulatory costs for home building rose 29% from 2011 to 2016 and Dietz said additional regulations continue to add on to the costs of home development and building.

In Chattanooga, the Home Builders Association is fighting plans for new steep slope regulations in the city of Chattanooga, where 54% of the vacant land is located on sites with a slope of 25% or more.

Dietz said lumber prices jumped 63% in 2017 and 2018, although they have dropped by 14% since January 2018, reflecting the impact of trade wars, building activity and currency changes.

Land to build new homes is also becoming more expensive, rising to a median price of $49,500 for single-family lots in 2018 across the U.S. as a whole even as the average lot size has shrunk by 6% in the past decade, according to NAHB estimate.

Home buyers are benefiting by lower mortgage rates and rising wages, however. The current 30-year fixed rate mortgage averages 3.69%, down from 4.87% in November 2018. New home inventory in September (the most recent month available) is at a 5.5-month level, compared with 7.4 months of sales supply at the end of last year.

Mortgage interest rates may ease back up a bit in 2020 and 2021 and the rate of economic growth is likely to fall in the next couple of years, Dietz said. But the NAHB economist puts the chances of a recession next year at no more than one in three and he expects GDP growth of another 2.1% in 2020 and 2% in 2021.

The economic expansion, now in its 127th month, is now the longest period of sustained economic growth in modern history.

Contact Dave Flessner at or at 757-6340.