Chattanooga homebuyers seeing more options as rising interest rates reduce home sales

Home prices still up significantly from a year ago as local market remains stronger than in many cities

Staff photo by Olivia Ross / A For Sale sign sits in a Signal Mountain home's lawn on August 15, 2022.
Staff photo by Olivia Ross / A For Sale sign sits in a Signal Mountain home's lawn on August 15, 2022.

Note: This story was updated to correct the spelling of Crystal Armstrong's name. 

Summer Moore has lived and worked in seven states during her career in journalism and in the current remote-work era is able to live most anywhere in the country.

After moving to Chattanooga a couple of years ago, the Colorado-born Moore said she fell in love with Tennessee and decided to settle down and buy her first home in Chattanooga. But her seven-month search this year to find a home she liked and could afford has been a struggle with many starter homes selling in a matter of hours and often at premium prices.

"This is a great town with a lot to do without the traffic of a big city, but finding a house has been a journey," Moore, who works as the director of audience growth for American City Business Journals, said in a telephone interview Tuesday. "I've watched interest rates go up this year and that's certainly a challenge, but I was fortunate to find a home and decided to move on it quickly."

Moore moved into a new two-bedroom home she bought in Highland Park last month. Moore's real estate agent for the purchase, Crystal Armstrong, said Moore and other homebuyers are benefiting from an increase in inventory of homes for sale as a growing number of prospective buyers are priced out of the market after long-term mortgage rates have risen to their highest level in 15 years.

"Rising rates are slowing down the market some, but the good news is that it's a bit easier to find the right home for homebuyers like Summer," Armstrong said in a phone interview Wednesday.

As 30-year mortgage rates topped 6% last month, home sales in Chattanooga fell in September to their lowest level since February and were down more than 15% from a year ago, according to a new report on home sales by the Greater Chattanooga Realtors. The steady rise in interest rates this year from the monetary tightening by the Federal Reserve Board has reduced the number of homes sold in the first three quarters of 2022 in Chattanooga by 4.3% from last year.

"There's no denying that interest rates have been climbing as the temperature outside has fallen," Derek English, president of the Greater Chattanooga Association of Realtors, said in his weekly market report. "And just like being surprised when stepping out on a brisk fall morning, these higher rates are shocking to many homebuyers looking to enter the housing market. Unfortunately, this increase means that many folks looking to buy are being left out in the cold."

English said home buying is 12% more expensive now than just a month ago, meaning current buyers need to spend about $250 more every month to buy a median-priced home compared to buyers who purchased their home a month ago.

Economists expect the slowdown in sales from the higher interest rates will continue in the fourth quarter and 2022 should end up being the first year since 2011 with a drop in home sales from the previous year.

"What I think is beyond denial right now, beyond debate, is the fact that the housing sector itself is in recession," Robert Dietz, chief economist of the National Association of Home Builders, said in a presentation Tuesday at the annual National Association of Real Estate Editors conference in Atlanta.

Lawrence Yun, the chief economist for the National Association of Realtors, projects 30-year mortgage rates will likely rise to nearly 7% in coming months as the Federal Reserve continues to try to slow the economy to ease inflationary pressures.

"Only when inflation calms down will we see mortgage rates begin to steady," Yun said in a recent report.

As a result, Yun predicts existing-home sales nationwide will decline 15.2% in 2022 to 5.19 million units, while new home sales are projected to fall by 20.9%.

Chattanooga's housing market appears to be holding up better than many parts of the country with sales down in the first three quarters of the year by 4.8%. The median home price in Chattanooga of $306,625 is still about 20% below the U.S. average, according to the National Association of Realtors. Monthly median home prices in Chattanooga peaked at $328,725 in June as buyers rushed to close on sales ahead of even higher rates.

But even as some home prices have stabilized or even declined in some instances, the median price of homes sold in Chattanooga last month was still up by 17.8% from a year ago.

Indi Maharaj, who is shopping for a new home for her sister who is moving to Chattanooga, said she is amazed at the jump in local housing prices since she moved to Chattanooga in 1988. The median price of homes in Chattanooga has more than doubled in just the past decade. Many local home buyers are having to compete with new residents moving into the area or investors buying up residential properties to rent.

"I find sometimes that the prices are ridiculously high, but it is what it is," Maharaj said while touring a four-bedroom home that just came on the market this week in Glenwood for $315,000.

Diana Davies, a real estate agent with Century 21 Prime South who is helping Maharaj find a home, said she is seeing home prices stabilize and the market cool down this year with more homes for buyers to choose from. The inventory of homes on the market last month was nearly double the number on the market a year ago, according to the Realtors' multiple listing service.

"There are more homes coming on the market and they are staying on the market longer so buyers have more options today than they have had in a while," Davies said.

Homes in the Chattanooga market are still selling at higher prices and in greater volumes than they did before the pandemic, according to Realtors' association data.

"We're seeing a downturn in sales based upon buyer appetite," Mark Hite, one of Chattanooga's top-selling agents who heads the Mark Hite team at Keller Williams, said in a telephone interview. "However, when homes are priced fairly, they are continuing to sell at a pretty rapid clip and for an improved price over last year. Homes are still a great investment."


BY THE NUMBERS

In September, home sales in the Chattanooga area fell to the lowest level since February and the inventory of homes on the market more than doubled from earlier this year as prices and interest rates rose.

• $306,625 — the median price of homes sold, up 17.8% from a year ago

• 973 — Number of residential sales closed, down 15.3% from a year ago

• 23 — Average number of days on the market, up 53.3% from a year ago

• 1,972 — Number of homes for sale, up 32.7% from a year ago

• 6.7% — 30-year mortgage rate, up from 3.01% a year earlier

Source: Greater Chattanooga Association of Realtors multiple listing service, Freddie Mac

Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340. Follow him on Twitter at @Dflessner1.