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Staff file photo / Builders work on home construction along Hedgewood Drive in Chattanooga earlier this year.

CLARIFICATION: This story was updated at 11:42 a.m. on Saturday, Sept. 4, 2021 to clarify that the quote in the last paragraph came from Dr. Ken H. Johnson.

Homes in the Chattanooga area are selling for nearly 25% more money than they should based on past pricing, a new study shows.

Chattanooga area homes are selling for a 24.84% premium, putting the Scenic City as the 34th most overvalued housing market among the top 100 metro areas, according to a study by Florida Atlantic University and Florida International University.

Boise, Idaho, is No. 1 with homes selling for an 80.64% premium. Austin, Texas, is next with a 50.72% premium followed by Ogden, Utah, at 49.7%.

All of Tennessee's four largest cities are in the top 37 nationally, figures show. Memphis is at No. 15 nationally with buyers paying a 34.6% premium. Nashville is at No. 31 with a 27.58% premium. Knoxville is No. 37 with a 23.99% premium, the study showed.

Dr. Ken H. Johnson, associate dean of graduate programs at FAU's College of Business, said a low housing inventory in Tennessee and the state's popularity for people relocating are reasons why the cities are clustered within the top 37.

"The inventory shortage will persist and Tennessee should remain very popular in terms of a relocation destination," he said.

Johnson, who conducted the study with Dr. Eli Beracha of FIU's Hollo School of Real Estate, said work-from-home consumers priced out of other markets during the pandemic appear to be leaving those expensive cities and driving up values in locations such as Boise.

Johnson said there's a housing downturn coming for many parts of the country, though Tennessee and other states experiencing a significant influx in population are less exposed.

Doug Fisher, executive officer of the Homebuilders Association of Greater Chattanooga, said that builders in the area are "still swimming upstream" when it comes to meeting the demand in the market.

SKY-HIGH HOUSING

The top metro areas where housing is the most over-valued and the estimated percent of the inflated value are:

1. Boise, Idaho - 80.64%

2. Austin, Texas - 50.72%

3. Ogden, Utah - 49.7%

4. Provo, Utah - 46.16%

5. Detroit - 45.37%

Mid-South metros

11. Atlanta - 38.31%

15. Memphis - 34.6%

31. Nashville - 27.58%

34. Chattanooga - 24.85%

37. Knoxville - 23.99%

Source: Florida Atlantic University and Florida International University study based upon housing prices and trends from January 1996 to July 2021.

 

In July, for example, the number of permits issued, 161, was less than the same month last year, 185, according to Hamilton County records.

But permits are up slightly for the year through July — 1,177 to 1,133.

Fisher said the value of construction is way up this year over 2020 — $171.6 million compared to $136.2 million a year ago, figures show.

He said the supply chain for building materials has slowed down, which is plaguing builders.

"That has caused most builders to draw back the number of permits they pulled and number of houses they're capable of building," Fisher said.

He said a recently passed resolution in the county enabling more housing on smaller lots will help, though that's on new projects which are on sewers.

Fisher said that while Chattanooga is No. 34 on the study's list, housing costs are still significantly lower than the average nationally. The typical Chattanooga home is priced 30% below the U.S. median price of $315,900, according to figures.

Consumers buying now in the most overvalued markets are paying near peak prices and risk being stuck for a significant amount of time before they can realize solid returns on their real estate investments, said Johnson. The study is based upon home pricing trends over the past 25 years from January 1996 through last month. As mortgage rates rise and housing demand eases in the future, home prices could decline or at least not appreciate as much as other investments in the future in many overvalued markets, Fisher said.

"In the top 10 markets, potential buyers might want to consider renting and reinvesting money that they otherwise would have put into homeownership," Johnson said. "Renting and reinvesting has been shown to often outperform ownership in terms of wealth creation."

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

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