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File photo by Michael Conroy, AP / A "sale pending" sign is posted on a home as demand for homes rises amid a tight supply of houses in Chattanooga. Median home prices in Chattanooga rose 16.4% from the third quarter of 2019 to the third quarter of 2020.

Home prices in Chattanooga rose over the past year at one of the fastest rates in modern history as lower interest rates combined with a greater home focus to bid up prices by more than 16% in the past 12 months.

"I've been doing this for 47 years and I've never seen a residential market like this," said Henry Glascock, a real estate appraiser and auctioneer who tracks the trends in home prices. "Interest rates are extraordinarily low and demand for housing is up even though there are fewer houses for sale."

The median price of homes sold by Chattanooga area Realtors in the third quarter of 2020 was $228,700, or $32,200 more than a year earlier, according to a new report by the National Association of Realtors. Chattanooga home prices, on average, are still priced 27% below the nationwide average of $313,500. But home prices are appreciating at a faster pace in Chattanooga, which ranked as the 14th fastest metro area for price growth among the top 181 markets included in the Realtors study.

"Even with the slowdown we had when the pandemic first hit, this is going to be the best year I've ever had," said Mark Hite, a 20-year real estate veteran who heads one of the region's top-selling teams at Real Estate Partners. "The pandemic has focused a lot of attention on our homes and where we live and with interest rates this low there is just a lot more opportunity to buy right now."

To spur the economy amid the slowdown triggered by the coronavirus pandemic, the Federal Reserve Board has pushed borrowing rates to historic lows, reducing monthly home payments for home buyers even with higher housing prices.

At the same time, some home sellers have been more reluctant to put their houses up for sale due to the pandemic and home builders are facing higher land, lumber and other building costs due to earlier plant shutdowns, pushing up the prices of new homes and limiting some new development to meet the demand.

As a result, the inventory of homes for sale through the Realtors Multiple Listing Service fell Tuesday to only 1,258 single-family houses, down from 1,999 homes for sale at the start of 2020 and as many as 6,000 homes on the market a decade ago.

Rising home prices

In the Mid-South area, home prices in Chattanooga remained the lowest even though median prices for single-family homes sold in the third quarter in Chattanooga rose over the past year at one of the fastest rates in the region. Nationwide, the median home price in the third quarter was $313,500, up 12% from a year earlier. The median price of homes sold in the third quarter — and the change from a year earlier — in the region:

* Nashville, $305,800, up 9.3%

* Atlanta, $271,800, up 14.2%

* Birmingham, Ala., $254,500, up 14%

* Huntsville, Ala., $248,700, up 15%

* Knoxville, $238,700, up 12.8%

* Memphis, $232,900, up 19.1%

* Chattanooga, $228,700, up 16.4%

Source: National Association of Realtors. Results reflect the median sales price of existing single-family homes sold in the third quarter of 2020, compared with a year earlier.

"Supply is as low as I have ever seen it and that means that many houses are selling just as fast as they come on the market and many are getting multiple purchase offers if they are in the right price range," said Brandi Pearl Thompson, a Realtor for Keller Williams who is president of the Greater Chattanooga Realtors association.

Thompson, who builds and sells her own homes in addition to being an agent for others, said building supplies and land costs also are pushing up prices of new homes across Chattanooga.

"We just had a house being built where the lumber costs for framing were up about $12,000 from a year ago," she said. "The supply of affordable undeveloped land is also limited so that makes it harder to build enough homes at affordable prices to help meet some of the growing demand."

Demand is being pushed up both by first-time buyers but also older generations downsizing or relocating, Thompson said.

"This is the first time in history we've effectively had five generations of home buyers in the market," she said.

Chattanooga's median price of homes sold in the third quarter rose nearly six times as fast as the family income growth. But cheaper mortgage rates are overcoming most of that disparity, allowing most renters to be able to afford housing payments for the same or lower rates.

"The pandemic has taken away many options for spending money in other places like travel, entertainment or eating out and home has become the primary focus for a lot of people," said Jay Robinson, a Realtor with Keller Williams Realty who led Chattanooga's top-selling real estate team last year. "You combine that shift in emotional and familial priorities with historically low interest rates and you get a gang buster real estate market that is absolutely unprecedented."

Chattanooga has historically not seen such price surges in real estate prices that some other markets have had. But as more people move to Chattanooga and demand outpaces supply, Robinson and other Realtors said they expect the market to remain strong, albeit with slower price appreciation expected next year compared with the double-digit gains over the past year.

Home prices are appreciating nearly everywhere in the U.S., according to the National Association of Realtors

Due in large part to record-low mortgage rates and depleted nationwide housing inventory, median single-family home prices grew year-over-year in all 181 metropolitan areas tracked by the National Association of Realtors.

"Favorable mortgage rates will continue to bring fresh buyers to the market," said Lawrence Yun, chief economist for the National Association of Realtors. "However, the affordability situation will not improve even with low interest rates because housing prices are increasing much too fast."

Yun said 65% of U.S. markets had double-digit price growth from one year ago. In the Mid-South, the biggest increase came in Memphis, which ranked No. 9 in price appreciation among all U.S. markets with a robust 19.1% gain in median prices. Chattanooga was second in the region behind Memphis in price growth but the median price for houses in Chattanooga was still below all other major nearby markets.

At the end of the third quarter, 1.47 million existing homes were available for sale nationwide, or 19.2% lower than total inventory at the end of 2019's third quarter. As of September 2020, housing inventory totals were equivalent to 2.7 months at the current sales pace.

In Chattanooga, housing inventory equaled only 1.5 months — one of the lowest levels on record.

With home prices continuing to rise across the country, the typical American family needed roughly $50,819 in annual income to comfortably afford a mortgage on a typical existing single-family home, up from $48,912 in the second quarter and from $49,536 this time last year, according to the National Association of Realtors. A 30-year fixed-rate, 20% down payment mortgage is considered affordable if the mortgage payment accounts for no more than 25% of a family's income. A home purchase was affordable because the median family income was $81,477.

"As home prices increase both too quickly and too significantly, first-time buyers will increasingly face difficulty in coming up with a down payment," said Yun. "Transforming raw land into developable lots and new supply are clearly needed to help tame the home price growth."

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

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