Despite higher mortgage rates and a slowdown in home sales nationwide, Chattanooga real estate agents continued to sell more homes last month and at a record high price with the median value jumping over 21% in the past year to $315,000.
The number of homes sold through the Greater Chattanooga Association of Realtors was up 5.5% from a year ago while pending sales also increased 4.5% above the levels of a year ago, even with the record high prices. The average Chattanooga home was on the market in May for 14 days, or less than a third of the time it took to sell homes only a couple of years ago and a fraction of the time most homes were on the market a decade ago.
"I think what we saw in May is some of the last of the full sellers' market we've been in for the past few years and the last stampede to the door to get closed before interest rates go even higher," said Jay Robinson, the head of the Robinson Team at Keller Williams Realty and the top-selling residential real estate agent in Chattanooga last year. "I think, across the board, we're going to continue to see the market now slow in all price ranges."
In telephone interviews Friday, Robinson and other real estate professionals said they expect Chattanooga's market will fare better than the nation as a whole and homes will continue to sell, but perhaps at a slightly slower pace than the record levels of the past two years. Price appreciation may also slow as mortgage rates push up borrowing costs and limit what many home buyers can afford to purchase.
"We had a couple of months of slower sales in March and April and we saw a bit of a bounce-back in May," said Mark Hite, who heads one of the city's biggest residential sales teams at Real Estate Partners in Chattanooga. "It's like when you drop a ball and it initially bounces back. But with each subsequent drop it doesn't bounce back as high, and I would expect in coming months that sales will decline with growing interest rates putting pressure on buyers' affordability."
Hite said he also expects home prices to stabilize or increase at a much slower pace in the near future.
"But 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," Hite said.
Average long-term U.S. mortgage rates had their biggest one-week jump in 35 years this week with the Federal Reserve raising its key rate by three-quarters of a point in a bid to tame high inflation. Mortgage buyer Freddie Mac reported Thursday that the 30-year rate climbed from 5.23% last week to 5.78% this week, the highest it's been since November of 2008 during the housing crisis.
May home sales by the numbers
— $315,000 - Median sales price, up 21.2% from a year ago.— 14 - Number of days the typical home was on the market before sale, down 36.4% from a year ago.— 1,138 - Home sales closed in the Chattanooga area, up 5.5% from a year ago.— 1,162 - Pending home sales, up 4.5% from a year ago.Source: Multiple Listing Service of the Greater Chattanooga Realtors
Wednesday's rate hike by the Fed was its biggest in a single action since 1994.
The brisk jump in rates, along with a sharp increase in home prices, has been pushing potential homebuyers out of the market. Mortgage applications are down more than 15% from last year, and refinancings are down more than 70%, according to the Mortgage Bankers Association.
"With mortgage rates well above 5%, refinance activity continues to run more than 70% lower than last year," Joel Kan, the association's associate vice president of economic and industry forecasting, said in a report earlier this week.
On Tuesday, the online real estate broker Redfin, under pressure from the cooling housing market, said that it was laying off 8% of its workers. Another real estate firm, Compass, said this week it is laying off 10% of its employees "due to the clear signals of slowing economic growth," a spokesperson said in a statement. Compass employed about 4,800 people at the end of 2021.
But Chattanooga's housing market appears more resilient.
Chattanooga real estate agent Linda Brock, one of the top sellers of luxury homes in Chattanooga, said 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 said.
In 2019 before the COVID-19 pandemic, Chattanooga recorded 49 home sales of more than $1 million.
"As of today (just short of only six months), 80 properties have closed for over a million dollars already this year, and 58 are pending," Brock said. "Within 72 hours, in the last 10 days to two weeks, I have written contracts from $1.5 million to $2.5 million with each one purchased by Chattanoogans who own homes here but do NOT need to sell them to buy. This has happened as the rates have climbed."
Hite said as rates climb, agents and sellers are dusting off old playbooks, including getting buyers to assume Federal Housing Administration loans when possible or using adjustable-rate mortgages for lower initial rates. If there is a slowdown in the future, rates are likely to come down again.
Even with the rise in mortgage rates this year, home mortgages are still well below the peaks of the past, Hite said. The strong market has also encouraged more housing starts in Chattanooga.
And despite the jump in home prices locally, Chattanooga's median home price in May was still 29.5% below the median list price of $447,000 for all homes across the country, according to the National Association of Realtors.