Chattanooga 28th most overvalued housing market in the country, study says

Staff file photo by Olivia Ross  / Residential construction by Core Homes is shown at the River Breeze subdivision in Soddy-Daisy on Aug. 2, 2022.
Staff file photo by Olivia Ross / Residential construction by Core Homes is shown at the River Breeze subdivision in Soddy-Daisy on Aug. 2, 2022.

The Chattanooga area is the 28th most overvalued housing market in the nation, with buyers paying almost 42% more than they would have expected based on sales history, a study shows.

Chattanooga joins other Tennessee markets in Memphis, Nashville and Knoxville, with those three ranking in the top 20 in terms of homes selling for sharp premiums over expected prices, according to the study by Florida Atlantic University and Florida International University.

"Tennessee housing markets are benefiting from a surge in population and a shortage of available units (for sale and for rent). Thus, housing demand is up and supply is limited," Ken Johnson, associate dean of graduate programs in Florida Atlantic's college of business, said in an email.

The demand for homes nationally shot up when the pandemic hit, pumping both sales and prices.

As of Dec. 31, the average home in the Chattanooga metropolitan area sold for almost $284,000, while the expected sale price based on the past was put at just more than $200,000, or a premium of about 42%, the study showed. The premium put the Chattanooga area at No. 28 among the top 100 housing markets, according to the study.

A year ago, the average price in Chattanooga was about $243,000 and the expected price was about $194,000, with a premium around 25%, the study showed.

Johnson said buyers on the margins are being priced out of local markets as both property prices and mortgage rates are up sharply.

He added that it's most likely Chattanooga will experience a prolonged housing affordability crisis as monthly housing costs will take up a significant portion of the average monthly income of potential buyers.

Nationally, Cape Coral, Florida, was No. 1 in terms of an overvalued housing market with buyers paying a 62% premium, the study showed. Atlanta was third at almost 55%, according to the study.

In Tennessee, Memphis topped the overvalued list, coming in at No. 13 with purchasers paying more than a 47% premium. Nashville was No. 14 with a 46.5% premium, and Knoxville was No. 17 with almost a 46% premium, the study showed.

Steven Sharpe, president of the Greater Chattanooga Realtors, said in a telephone interview that the area has seen home prices appreciate 15% over three consecutive years. Demand is driven in part by more people moving to Tennessee due to its low-tax status, he said.

"That's worth a lot to a lot of people," Sharpe said.

While there is more home inventory than in the recent past, much of that is because some property owners are late to the game, he said.

"As the market was shifting, some inventory has been sitting out a little bit of time," Sharpe said.

Still, the median price of homes sold in the Chattanooga area is almost 17% below the U.S. average, figures show.

Jimmy White, a Chattanooga real estate investor in both commercial and residential properties, said the city is well situated as homebuyers are moving to the city and state from locations in California, Illinois and New York.

"The next five to 10 years, there should be good, smart growth," he said in a phone interview.

The study Johnson crafted along with Eli Beracha of Florida International's Hollo School of Real Estate uses data from the Zillow Home Value Index. The index has been reported monthly since 1996, the study said.

Moving ahead, Johnson said he expects the rising Tennessee population and shortage of housing inventory will come together to soften any downturn in a coming real estate market.

"It seems likely that Tennessee, in general, and Chattanooga, in particular, will experience a mild downturn in property prices," he said. "There is little evidence to support the idea that a massive downturn will occur again as after the last housing peak in late 2007."

Johnson said that with property prices most likely falling, but only modestly, home prices should remain above the Chattanooga long-term pricing trend. Therefore, Johnson said, the area should maintain premium pricing for some time to come though less than its current 42% premium.

Contact Mike Pare at mpare@timesfreepress.com or 423-757-6318.

TOP 5 MARKETS

Top overvalued housing markets and premium buyers are paying:

1. Cape Coral, Florida — 62.2%.

2. Deltona, Florida — 55.5%.

3. Atlanta — 54.8%.

4. Palm Bay, Florida — 54.5%.

5. Charlotte, North Carolina — 54%.

Source: Florida Atlantic University / Florida International University study

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