Local home prices rise faster than wages, but Chattanooga is still more affordable than most markets

A house is for sale on 601 Lytle Street Monday, June 20, 2016.

Home prices continued to rise faster than wages in the past year in Chattanooga, but the Scenic City remains a more affordable housing market than most U.S. cities, according to a new Home Affordability Report prepared today by ATTOM Data Solutions.

In the fourth quarter, the median price of homes in Chattanooga rose by 5.6% over the past year to $190,000. That outpaced the average 1.6% gain in annual wages for Chattanooga workers in the past year. In the fourth quarter, median wages in Chattanooga are estimated at $50,996.

Aided by lower mortgage rates and a favorable economy, the median income worker in Chattanooga was still able to buy a median priced home by spending about 26.5% of his or her income on housing expenses. That was better than in more than two thirds of all U.S. metro areas, including Nashville and Knoxville, where median homes were generally not affordable for the typical home buyer.

"Home prices rose across the country by 9% year-over-year in the fourth quarter of 2019, and the typical home remained a financial stretch for average wage earners," said Todd Teta, chief product officer with ATTOM Data Solutions, which compiled the data for the new study.

"However, homes were actually a bit more affordable because of declining mortgage rates combined with rising pay to overcome the continued price run-up. As long as people are earning more money and shelling out less to pay off home loans, the market should remain strong with prices continuing to rise, at least in the near term."

Teta said median home prices in the fourth quarter of 2019 were not affordable for average wage earners in 344 of the 486 biggest counties, or 71% of the U.S. counties analyzed in the report. That figure was down from 73% in the third quarter and 75% from a year earlier.

The report determined affordability for average wage earners by calculating the amount of income needed to make monthly house payments - including mortgage, property taxes and insurance - on a median-priced home, assuming a 3% down payment and a 28% maximum "front-end" debt-to-income ratio.

Kim Bass, president of Greater Chattanooga Realtors, said home affordability remains the biggest challenge for many home buyers, especially those trying to buy their first home.

"People often come here and expect that our home prices are going to be much lower and we're not that much different than many markets now in our home prices," she said. "We do have a lot of cost advantages in taxes and cost of living, however. While we are better than many cities, home affordability is our greatest challenge across the country."

Bass said Realtor sales in Chattanooga are up this year "and we expect another good year in 2020."

So far with home inventories still relatively lean, the National Association of Realtors forecasts continued increases in home prices for next year.

"Real estate is on firm ground with little chance of price declines," NAR Chief Economist Lawrence Yun said in a recent economic report. "However, in order for the market to be healthier, more supply is needed to assure home prices as well as rents do not consistently outgrow income gains."

Chattanooga Mayor Andy Berke praised the city's robust growth, including Manpower Group surveys this fall that showed Chattanooga had the best hiring outlook of any U.S. city and another study that showed that Chattanooga led the nation in the growth rate of foreign-born residents.

"There are some good things about rising home prices if you own a home and your home is now worth $20,000 more because that's money you can get if you sell or refinance your home," Berke said. "But we also know that when home prices continue to go up, the gap between those able to buy a home and those who can't gets bigger and some people have fewer choices."

To help address such gaps, the city of Chattanooga established a Housing Affordable Fund two years ago and the city has allocated $1 million a year into the program to encourage affordable housing for low-income households.

"One of the things that I have learned since I have been mayor is that we just can't get affordable housing without some kind of subsidy - federal, state and local assistance - to make the math work," he said.

In the Mid-South region, homes were most affordable in relation to average worker incomes in Huntsville, Alabama, where wages rose 3.8% in the past year to $60,359 a year and median home prices were up 6.3% to $167,000. Home affordability in the region was hardest in Nashville were home prices are up 5.7% in the past year to $274,900, outstripping the 1.9% gain in yearly wages to $60,541.

Buying a home in Cleveland, Tenn., also was more affordable than in most cities. In Bradley County, median income rose in the past year by 4.4% to $42,744 a year, while median home prices were flat at $152,000.

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.