Study: Record home sales boosting housing prices in Chattanooga, cutting affordability and possibly job growth

With the increase in home prices outstripping wage and income gains in Chattanooga, the region is becoming less affordable than in the past and that could be hurting job growth in metro Chattanooga, according to a new study by the National Association of Realtors.

Chattanooga ranked fourth among 174 major U.S. cities in the decline of households that can comfortably afford to buy a median price home in the market. Although home prices in Chattanooga remain nearly 30% below the U.S. average, housing prices have risen faster in Chattanooga than the U.S. as a whole since 2014 and have risen far more than wages.

As a result, home affordability has dropped in the local market and the available inventory of homes available for sale shrunk at the end of last year to only 2.6 months, or less than a fourth of the average selling time for houses a decade ago.

The NAR analysis found that in markets like Chattanooga where home affordability has worsened more than the U.S. as a whole, the pace of job growth appears to be flattening out more than in more affordable markets.

"Job growth has slowed in these areas in part because limited supply is making homes less affordable," said Lawrence Yun, chief economist for the National Association of Realtors. "As inventory continues to decline and affordability worsens, workers, businesses and companies are less incentivized to do business in these areas."

The NAR report, "Home Affordability Index Ranking and Payroll Job Growth," found that affordability rankings declined in 81 metro areas and in nearly half of those markets, including Chattanooga and Nashville, job growth fell faster than the U.S. rate over the previous five years.

Chattanooga and Nashville continue to add jobs and boast lower unemployment than the U.S. average. But the pace of hiring additions slowed last year from the torrid rate of a couple of years earlier.

"There's no question that affordability is more of a challenge than in the past for many home buyers and that is a real challenge for all of us," said Brandi Pearl Thompson, a Keller Williams agent who is the 2020 president of the Greater Chattanooga Realtors association.

Last year, the median price of homes sold by Chattanooga Realtors rose 8.6% to $203,085 - the first time the average home sold in Chattanooga topped $200,000. Since 2015, average home prices in Chattanooga have risen by more than a third, or nearly three times faster than the growth in average wages.

NAR's news site, Realtor,com, projected earlier this month that Chattanooga would be among the top U.S. housing markets in 2020. In contrast to a projected nationwide drop of 1.8% in residential real estate sales in 2020, Chattanooga home sales are projected by Realtor.com to rise by 2% in the new year over 2019.

Average home prices in Chattanooga also are projected to rise faster than most markets. Realtor.com economists forecast Chattanooga home prices will increase an another 3.6% this year, far outstripping the projected 0.8% gain in home prices nationwide.

Local home prices already were rising faster than wages in Chattanooga, according to Home Affordability Reports prepared by ATTOM Data Solutions.

As a result, many young adults are staying at home with their parents longer than in previous generations.

"If you go back 20 years ago, about one in 10 people age 25 to 34 years old lived with their parents, but today it is more than one of every five," NAR Chief Econmist Robert Dietz told the Greater Chattanooga Realtors and the Home Builders Association of Chattanooga during the groups' annual economic outlook luncheon in early January. "If you have a young adult child who is basically a tenant in your home, you are not alone - there are millions of others such persons and a lot more multi-generational households today."

As a result, the U.S. homeownership rate, which reached a peak of 69.2% in 2004, fell to just over 63% by 2016 and is now estimated at 64.8%.

Dietz said the homeownership rate in Chattanooga remains above the U.S. rate and is now estimated at 67.6%.

The National Association of Realtors said Chattanooga ranked as the 58th most affordable market among the 174 biggest U.S. cities in 2014. But by 2018, Chattanooga had dropped to the 70th most affordable market and rising home prices last year are likely to make Chattanooga even less affordable relative to many cities when the final 2019 figures are released.

In response to the growing challenge of finding affordable housing as Chattanooga home prices rise, the city established the Chattanooga Affordable Housing Fund last year with $1 million of funds and a commitment to provide at least $1 million a year for the program for five years. Last week. a city panel allocated $25,000 from the affordable housing fund to pay for a study on ways the the city might create a community land trust to provide property for developers to create more affordable housing.

Michael Gilliland of the nonprofit Chattanooga in Action for Love, Equality and Benevolence, or CALEB, who pushed for the study, said the the lack of affordable housing has hit an "egregious" state in Chattanooga.

A key problem in Chattanooga and other markets is the declining inventory of homes available for sale. In 2019, the year ended with 2,349 homes for sale, down 17.4% from the previous year and nearly 42% less than the inventory on the market in 2015.

"The U.S. is in need of more new housing," Yun said. "Historically, anytime that we have needed to build, there was never a recession. This is an incentive for builders to start more construction. If they do, I think we will have at least 12 consecutive years of economic expansion."

But Yun said worsening affordability and inventory conditions could leave some of the nation's previously fast growing metro areas unable to sustain job and economic growth.

"Even fast-growing markets could be hurt and unable to further expand because of weakening affordability conditions. We must improve affordability by building more homes in line with local job market growth," he said.

Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.