Chattanooga home prices and sales continued to outpace the national average this spring, but the local housing market appears to be slowing as higher interest rates and building costs squeeze more homebuyers out of the market.
A new report from the National Association of Realtors shows home sales and prices in the Chattanooga area rose faster than the U.S. average during the second quarter of the year. The median price for single-family homes sold in Chattanooga during April, May and June was up 17.8% from the previous year, while homes sold this spring at the quickest pace on record as many homebuyers sought to buy ahead of rising interest rates.
Chattanooga Realtor Jay Robinson, the top-selling real estate agent in Chattanooga last year, said the price and sales gains earlier in the year reflected "the last stampede to the door" to close sales before mortgage rates move higher under the Federal Reserve's well-publicized approach to steadily raising interest rates to slow the economy.
"Buyer traffic is slowing down, although seller expectations are still extremely high," Robinson said in a telephone interview Monday, "I think it's going to be an adjustment in the market that is going to continue to take place over the next three or four months."
Robinson and other Realtors said higher interest rates and the Federal Reserve's efforts to slow the economy appear to be limiting residential real estate sales, but the market still remains fairly robust by historic standards.
The number of single-family homes sold by Chattanooga Realtors in July dropped by 12.7% from the total in June while the median price of those homes sold also dropped 5.7% from the previous month - the first monthly drop so far this year, according to the Greater Chattanooga Realtors association.
"Home prices have increased at a pace that far exceeds wage gains, especially for low- and middle-income workers," Lawrence Yun, chief economist for the National Association of Realtors, said in a report last week. "Overall, the national price deceleration inevitably followed the softening sales, providing well-positioned prospective buyers a small measure of welcomed relief. The recent dips in mortgage rates will bring additional buyers to the market, especially in those places where home prices are still relatively affordable and where jobs are being added."
The $310,000 price paid for the typical homebuyer in Chattanooga last month was still up by more than $50,000 from the same time a year ago and was more than $100,000 higher than the median price paid for the typical home in Chattanooga before the pandemic three years ago.
But Chattanooga home prices, on average, were still priced 5.7% less than in June and were 26.2% below the U.S. median price of $413,500 last month. Chattanooga's price advantage, combined with the lack of any state income tax, has lured many buyers into Tennessee from more expensive markets in bigger cities or the West Coast.
Chattanooga developer Jack Kruesi, who is building the Wild Ridge subdivision atop Signal Mountain, said about half of the 65 homes sold already in his development have been bought by relocating workers, retirees or others interested in moving into a more affordable and scenic environment.
Home prices rise across the Mid-South
Home prices rose in all of the metro markets in the Mid-South faster than the U.S. median price over the past year. The median price for homes sold in the second quarter of 2022, and the increases from a year earlier, were the biggest in:— Nashville: $418,500, up 19.8%— Atlanta: $379,700, up 20.1%— Knoxville: $336,000, up 23.6%— Huntsville, Alabama: $327,600, up 20.1%— Birmingham, Alabama: $318,800, up 15%— Chattanooga: $299,800, up 17.8%— Memphis: $288,000, up 14.7%Source: National Association of Realtors
"As more people have begun to work remotely or discovered the attraction of living in this area, we've seen people from all over the country move here, and for many of them our home prices are still very attractive," Kruesi said.
Kruesi said home prices are being pushed up by the growing scarcity of easily developable land in the Chattanooga area, combined with higher inflation and interest rates that have pushed up building materials and labor expenses along with higher mortgage rates.
Nationally, the median single-family existing-home price during the second quarter eclipsed $400,000 for the first time, rising 14.2% from one year ago to $413,500.
Chattanooga remains lower priced than most metro markets in the Mid-South. Median home prices are lower than Chattanooga in only Memphis among major metro markets in Tennessee and Georgia.
July home sales by the numbers
Home sales and median prices in Chattanooga last month dipped from the levels reached this spring as higher mortgage rates began to cool the local housing market— $310,000: Median home price in July, down from $328,725 in June— 999 completed home sales, down from 1,144 in June— 1,062 pending home sales, down from 1,089 in June— 15: the average number of days on the market to sell a home, up from the record-low 13 days in June.Source: Greater Chattanooga Realtors association.
Beyond the increase in home costs, higher mortgage rates are pushing up monthly payments for home purchases. Last week, the average rate was 5.56% on a 30-year fixed mortgage and 4.96% on a 15-year mortgage, according to Bankrate.com. That is double the mortgage rates of a year ago.
As a result, housing affordability dramatically tumbled in the second quarter of 2022, Yun said. The monthly mortgage payment on a typical existing single-family home in the U.S. with a 20% down payment jumped to $1,841. That's an increase of $444 - or 32% - from the first quarter of this year and $612 - or 50% - from one year ago.
Families typically spent 24.3% of their income on mortgage payments, up from 18.7% the prior quarter and 16.9% one year ago.
NAR reported first-time buyers typically spent 36.8% of their family income on mortgage payments, up from 28.7% in the previous quarter. A mortgage is considered unaffordable if the monthly payment (principal and interest) amounts to over 25% of the family's income.
Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340 or on Twitter at @Dflessner1.