Editor's note: This story was updated on April 14 to correct the first quarter home sales totals.
Despite rising interest rates and growing fears of a recession over the past year, home sales and prices in the Chattanooga area have remained relatively stable.
Chattanooga real estate agents sold nearly 11% fewer houses in the first three months of this year compared with the near-record high levels reached a year earlier, according to housing figures released Thursday by the Greater Chattanooga Realtors. In the first quarter of 2023, agents sold 2,343 houses, or 388 fewer than in the first quarter of the previous year.
Despite the sales dip, the median price of homes sold last month in Chattanooga, $315,000, was up 5% from the $300,000 median price homebuyers paid in Chattanooga in March 2022.
"We are seeing a slight decline in sales as higher interest rates make housing less affordable, especially for some first-time homebuyers," said Steven Sharpe, a managing broker for Keller Williams and president of the Greater Chattanooga Realtors. "We're starting to see more supply of homes on the market, and we're entering into the season when more homes come on the market during the spring and early summer. But we still see relatively strong demand in relation to the supply of homes on the market."
In a telephone interview, Sharpe said higher interest rates also tend to make some sellers reluctant to give up their existing mortgages to trade up to another home that might require they take on a higher rate mortgage. Sharpe said 62% of all 30-year mortgages still have a rate that is under 4%.
"It's very difficult for those sellers to give up that rate for a new mortgage that could be above 6% on a new purchase," Sharpe said.
Although mortgage rates nearly doubled from their pandemic lows reached a couple of years ago, mortgage rates have moderated some in the past month, with rates falling this week for the fifth consecutive week.
Mortgage buyer Freddie Mac reported Thursday the average on the benchmark 30-year rate ticked down to 6.27% from 6.28% the previous week. The average rate last year at this time was 5%.
The average long-term mortgage rate hit 7.08% in the fall — a two-decade high.
The recent decline in mortgage rates is good news for prospective homebuyers, many of whom were pushed to the sidelines during the past year as the Federal Reserve raised its main lending rate nine straight times in a bid to beat back stubborn, four-decade high inflation.
Though supply remains low, home prices are retreating slightly, another development that could lure buyers back into the market. The national median home price slipped 0.2% from February last year to $363,000, marking the first annual decline in 13 years, according to the National Association of Realtors.
"The affordable U.S. regions – the Midwest and South – are leading the recovery," Lawrence Yun, chief economist for the National Association of Realtors, said in a report last month. "Mortgage rates have improved in recent weeks after the federal government guaranteed the status of most mortgages amidst uncertainty in the financial market. While access to commercial mortgage loans could become increasingly difficult, residential mortgage loans are expected to be more readily available."
Jay Robinson, the top-selling real estate agent in Chattanooga, said Chattanooga's market "has remained steady" and should outperform the U.S. as a whole due to its relatively lower costs and better economic growth rate.
Robinson said higher interest rates and a possible economic slowdown appear to be dampening the red-hot pricing for many homes, which had jumped by more than 63% in the past four years in Chattanooga from a median price of $187,000 in 2018 to median price of $305,000 last year.
"Higher interest rates have knocked some first-time homebuyers out of the market, but the core of our market is still out, and Chattanooga is still seen as an attractive market where a lot of people want to move," Robinson said in a telephone interview Thursday.
Despite the jump in Chattanooga home prices in recent years, the median price of houses sold by Realtors in Chattanooga was still more than 20% below the U.S. median price in February, according to the most recent figures compiled by the National Association of Realtors.
March home sales by the numbers
— $315,000: Median home price in Chattanooga, up from $300,000 a year earlier.
— 964: Number of closed home sales, down from 1,003 a year earlier.
— 1,031: Number of pending sales, down from 1,174 a year earlier.
— 1,539: Number of homes on the market (36-day supply), up from 810 (19-day supply) a year earlier.
Source: Greater Chattanooga Realtors
The Associated Press contributed to this report.
Contact Dave Flessner at dflessner@timesfreepress.com or 423-757-6340.
A "for sale" sign is posted in front of a home in Sacramento, Calif., in 2022. Years of soaring prices turned into big profits for U.S. homeowners who sold their home in 2022, even as the housing market's slump deepened, new data show. (AP Photo/Rich Pedroncelli)