Chattanooga home prices skyrocket as sales grow, but inventory on market remains scarce

Chattanooga home prices continued to jump in the first quarter of 2021 as the inventory of homes on the market shrunk to record lows during the pandemic, while more families and investors are eager to buy into Chattanooga's residential market.

The median price of homes sold in Chattanooga during the first three months of the year jumped 17.5% from the same period a year earlier, rising to a record high median price of $232,300 for a typical single-family home.

"Cheaper mortgage rates have allowed homebuyers to pay more money with the same monthly payment than in the past, and we're seeing an influx of buyers from other parts of the country who still see Chattanooga as a very affordable market," said Robert Backer, a real estate agent with Coldwell Banker Pryor Realty Inc. and president this year of the Greater Chattanooga Realtors association.

Chattanooga home prices were up by an average of $34,600 per single-family house this year compared with a year earlier. But the median price of Chattanooga homes was still 27.2% below the nationwide average in the first quarter and well below nearby markets such as Nashville, Atlanta and Huntsville, Alabama.

Rated as a top city for remote workers to live in by both MakeMyMove and PC magazine, Chattanooga is drawing interest from many workers fleeing bigger, more expensive markets. That helped boost single-family home sales by 25% in the first quarter above the record-high volume of a year ago, according to data from the Greater Chattanooga Association of Realtors' multiple listing service.

But while demand for housing is growing, the supply of homes for sale is down. The inventory of single-family homes on the market last month was a third as many as a year ago and less than 20% of the number of homes up for sale a decade ago.

In selling homes across the Chattanooga market for the past 34 years, Realtor Jay Robinson said the current market is one of the most unbalanced between buyers and sellers that he has seen.

"It's a dream come true for a seller, but it's very tough to be a homebuyer right now," said Robinson, who was the top-selling real estate agent in Chattanooga last year. "Anytime the market is so far out of balance like it is today, it's really not a healthy situation."

The average home in Chattanooga sold within 33 days during the first quarter of 2021, a record low selling time for houses on the market. Last month, the sales pace quickened even more to an average selling period of 23 days, and Realtors report many homes are selling in only two or three days.

Last year, the average home was on the market for 43 days and a decade ago the typical home was on the market for 126 days, according to the Chattanooga Realtor reports.

The recent shortage of inventory was sparked, in part, by the reluctance of some sellers to put their homes on the market during the COVID-19 pandemic when people didn't want strangers coming into their houses for tours and visits. While those concerns are easing, sellers are still caught in a Catch-22 situation of being able to fetch higher prices for the house they are selling but then having to turn around and also pay much higher prices to move elsewhere, and they often must act quickly to make it all happen.

"Homeowners understand they can make a lot more money selling their house today, but you've got to have a place to move, and no matter wherever that is, that is going to cost more money," Baker said.

Staff Photo by Matt Hamilton / Construction continues on homes at Camber Hill off Hixson Pike in Chattanooga on Friday, May 14, 2021.

PRICED OUT

Chattanooga's home appreciation has outpaced the national average this year, but nearly all markets are seeing a smaller inventory of homes on the market and higher prices for houses that are sold.

Although home sellers have benefited from sharp price jumps, the situation has presented challenges for buyers.

"The sudden price appreciation is impacting affordability, especially among first-time homebuyers," said Lawrence Yun, chief economist for the National Association of Realtors. "With low inventory already impacting the market, added skyrocketing costs have left many families facing the reality of being priced out entirely."

Nationally, the National Association of Realtors said the median existing-home sales price rose 16.2% on a year-over-year basis to $319,200, a record high since 1989.

As a result of soaring home prices, the average national monthly mortgage payment rose to $1,067, up from $995 one year ago. Housing costs are going up even as the effective 30-year fixed mortgage rate decreased from 3.57% in the first three months of 2020 to 2.93% in the first quarter of 2021.

Nationally, a family typically needed an income of $51,216 to pay a 30-year fixed-rate mortgage with a 20% down payment, up from an income of $47,760 needed to buy a typical home a year ago.

"The affordability of homes is becoming more of a challenge, and that could slow the market over the next year," Robinson said.

HIGHER PRICES

The strong housing market should trigger more homebuilding activity, but constructing enough homes to meet the demand in Chattanooga has proven difficult due to shortages of land, labor and building materials.

"The homes we're building are in very high demand - the highest I've ever seen in my lifetime," said Jay Bell, president of Bell Homebuilders, a 45-year-old residential construction firm where Jay Bell has worked for nearly three decades. "I've never seen a market like what we have right now. There's almost a frenzy to find a house because there is such a scarcity."

Bell and other local homebuilders said even with more demand, finding available home lots, building materials and skilled labor remain difficult and more costly.

"We're really in a crisis to have buildable lots," Bell said, noting that building and land regulations in a mountainous city like Chattanooga create limits on where and how builders can construct more housing. "We just can't supply the demand right now."

Gus Issa, owner of G.T. Issa Homebuilders, said the market is the most challenging he has seen in his 21 years in the business.

"We're building more homes than we ever have; we're selling our houses to the most we ever have, but our margins are probably tighter than they have ever been," he said. "With these skyrocketing prices, people think we as builders are making a killing, but we're not. I would happily trade this market for where we were five years ago."

Lumber prices are up 67% this year and have tripled from a year ago, according to Random Lengths, a wood products industry tracking firm. The surge in lumber prices in the past year has added $35,872 to the price of an average new single-family home, according to estimates by the National Association of Home Builders.

"We've seen double-digit cost increases over the past year on nearly everything we put in a house," Issa said. "The pandemic shut down some of the production of products last year, but now we have a huge demand and suppliers can't keep up."

Issa said he is building about 70 homes right now, and 60% of those are being bought by out-of-town buyers as many homeowners flee more expensive states like California, Illinois and New York to take advantage of Tennessee's growing economy and lower cost of living.

Despite skyrocketing home prices, a majority of Americans (53%) still believe now is a good time to buy a home, according to an April survey of nearly 1,000 U.S. adults conducted last month by Gallup. Robinson said there is a "buying mania" to get ahead of more price increases in the future.

Backer said predicting how long such market conditions will prevail is difficult.

"My crystal ball is cracked at this point," he said. "This is the craziest market I've ever seen."

Contact Dave Flessner at dflessner@timesfreepress.com or at 423-987-2620.

Staff Photo by Matt Hamilton / A model home goes on display at Camber Hill off Hixson Pike in Chattanooga on Friday, May 14, 2021.