Higher mortgage rates may curb growth but Chattanooga keeps drawing outside home buyers

Photography by Jesse Hunter/Overnight Agency / Players Court, Harrison, Tennessee
Photography by Jesse Hunter/Overnight Agency / Players Court, Harrison, Tennessee

Over the past decade, home sales and prices have more than doubled in the Chattanooga area, rising steadily as interest rates have remained historically low and the local economy has continued to add jobs and residents.

But higher mortgage rates in 2022 are curbing the prolonged sales surge in the housing market. With the 30-year mortgage rate rising above 5% this spring, Chattanooga real estate agents are bracing for a possible yearly drop in home sales for the first time since the 2008-2009 recession.

"Higher interest rates have obviously affected consumers' buying power, and everyone is tightening their belts a little bit," says Derek English, an associate broker with Scout Realtor Group, LLC, who is president of the Greater Chattanooga Realtors association.

"We're probably not going to break last year's record for home sales, but we're still seeing more people move to Chattanooga; and fortunately we're seeing more inventory to sell, so it still should be a pretty good year," English said.

Even with the higher borrowing rates, mortgage rates are still relatively low from a historical standpoint. Historically, 30-year fixed rates have averaged just under 8%. So even with 30-year rates hovering around 6%, they're still attractive by historic norms.

As mortgage interest rates headed up this spring, many Chattanooga home buyers scrambled to buy and lock in purchases before prices exceeded their budgets. Over the past two years, the average rate on 30-year home mortgages has doubled from the record lows reached during the pandemic.

"The housing market is clearly undergoing a transition," says Lawrence Yun, chief economist for the National Association of Realtors (NAR). "Contract signings are down sizably from a year ago because of much higher mortgage rates."

According to an NAR report this summer, monthly mortgage payments for the median-priced home in America have jumped by nearly $800 since the beginning of the year.

Jay Robinson, a real estate broker for Keller Williams Realty and Chattanooga's top-selling real estate agent last year, said he expects the market to cool this year with higher mortgage rates and home prices pushing more buyers out of the game. The higher sales earlier this year that came as interest rates rose "is the last of the true, bold sellers' market.

"We're seeing a last stampede to the door to get deals closed before rates go even higher," Robinson said earlier this summer as rates continued to rise. "Things changed so dramatically that what happened three months ago or six months ago is not necessarily what is going to happen right now. We continue to see the market slow in all price ranges."

Many of Chattanooga's neighborhoods remain popular, with both pent-up demand and an influx of retirees and remote workers into the Gig City keeping demand up. Those moving to Chattanooga from major cities or California markets find much less expensive housing options in Chattanooga.

Despite a 21% jump in the median home price in Chattanooga in the 12 months ended in May, Chattanooga home prices in May still averaged 22.8% less than the U.S. average, according to the multiple listing service data compiled by the Greater Chattanooga Realtors. In May, the median home sale for a single-family house in Chattanooga was $315,000 compared to the U.S. median of $407,600.

The average rental rate for a two-bedroom apartment in Chattanooga jumped by 21.7% in the 12 months ended in June to a record high monthly rate of $1,400, according to the Zumper National Rent Report. But Chattanooga rental rates still average 10 to 20% less than the U.S. average, according to Zumper.

"Even with the price increases we've seen, Chattanooga home prices are still below most of the country and we're still seen as a relatively affordable area to buy," says Mark Hite, the head of one of Chattanooga's top-selling real estate teams at Real Estate Partners. "If homes are priced right, they will still sell almost immediately, and I think our market will remain relatively vibrant even as rates go up this year."

In May, the typical home sold in Chattanooga in only 14 days, an all-time low, according to the Greater Chattanooga Realtors.

Chattanooga has been the top Tennessee city for the net inflow of new residents coming out of the pandemic this year, according to a study of moving requests by the website moveBuddha.com. Chattanooga had 3.06 new residents moving into the six-county metro region for every person moving out of the Chattanooga metro area in the first 18 weeks of the year. Tennessee, as a whole, continues to outpace the nation in drawing new residents. Last year, moveBuddha.com ranked Tennesee among the top 10 states for net inflow of residents.

"We're still seeing a lot of people move to Chattanooga and there is still a lot of pent-up demand," English says.

Chattanooga real estate agent Linda Brock, one of the top sellers of luxury homes in Chattanooga, says both the inventory of homes and the sales of houses grew this spring in Chattanooga.

"We have become so spoiled that if a property does not go under contract within the first week, we wonder what is wrong," Brock says. "Things had to relax, but Chattanooga is in a unique position as Covid became our best friend of growth for all the reasons we recognize. It is a great place to recreate outside 12 months out of the year, is gorgeous, has no state income tax and as people were sent home to work, why not have the fastest and strongest internet while doing it."

The current slowing in the housing market isn't expected to be anything like the downturn in the Great Recession of 2008 and 2009 when home foreclosures jumped and average home prices dropped in value.

"Don't expect a housing crash a la 2008," said Jeff Andrews of the Zumper National Rent Report. "The labor market remains robust, and lending practices have become much more prudent since the last housing market crash. Instead, we'll likely see a slow return to seasonal trends that were more typical in pre-pandemic years, as digital nomads either return to the office or settle into their new work-from-home locales."

Chattanooga home sales

Sales and prices of single-family homes in Chattanooga have risen steadily and more than doubled in the past decade to a record high in 2021.* 2011 - 5,569 sales at a median price of $124,000* 2012 - 7,038 sales at a median price of $131,500* 2013 - 7,634 sales at a median price of $134,900* 2014 - 7,828 sales at a median price of $142,000* 2015 - 8,755 sales at a median price of $152,000* 2016 - 9,623 sales at a median price of $161,000* 2017 - 9,828 sales at a median price of $175,000* 2018 - 10,043 sales at a median price of $187,000* 2019 - 10,780 sales at a median price of $203,085* 2020 - 11,737 sales at a median price of $230,000* 2021 - 12,896 sales at a median price of $265,000Source: Greater Chattanooga Realtors multiple listing service.


* The big catch-up

* Neighborhood for rent: Chattanooga-area build-to-rent housing is robust but could face economic challenges