Chattanooga's median home price topped $300,000 last month for the first time as a tight inventory of homes on the market pushed up the typical home sale price by 18.5% compared to a year ago, the Greater Chattanooga Association of Realtors said in its monthly report for March released Wednesday.
Chattanooga home prices remain at least 25% below the U.S. average, according to the National Association of Realtors. But home prices in the Chattanooga area rose faster than the national average in the first quarter of this year as local homebuyers rush to get ahead of higher mortgage rates expected this spring with home inventories still relatively tight.
The typical home in Chattanooga sold in only 19 days last month as the inventory of houses for sale in the Chattanooga area dropped by nearly 29% from a year ago.
"Chattanooga has long been what I consider a best-kept secret for property values," Derek English, the president of the Greater Chattanooga Association of Realtors, said in a phone interview Wednesday. "With more people discovering the advantages of Tennessee and moving here from around the country, that's pushing up demand and prices."
But amid the traditionally busy spring home sales season, the red hot real estate market may soon begin to cool as both prices and interest rates rise, pricing more homebuyers out of the market and forcing others to scale back in the size of their home purchases.
The Mortgage Bankers Association reported Wednesday that the average interest rate on the most popular U.S. home loan rose to more than 5% last week, the highest level since November 2018.
The average contract rate on a 30-year fixed-rate mortgage increased to 5.13% in the week ended April 8 from 4.9% a week earlier. It is up more than 1.5 percentage points since the start of the year, when the Federal Reserve began to tighten financial conditions to cool demand in the economy amid high inflation.
"With interest rates going up, I think we're right at the end of the bull market and what we're seeing right now is the last rush of a real seller's market as buyers try to close before mortgage rates go even higher," Jay Robinson, Chattanooga's top-selling residential real estate agent, said in a phone interview Wednesday. "I don't think it's going to flip to a buyers' market anytime soon, but I think it will be more neutral for the rest of this year."
Mike Fratantoni, chief economist for the Mortgage Bankers Association, said in a report Wednesday that he expects existing home sales will decline in 2022. In the first three months of 2022, the number of completed home sales by local real estate agents was down 11.9% from the record-high pace last year.
"Even though existing sales volume will be slightly lower than last year, the continued growth in new home sales and the swift rise in home prices should deliver a smaller, but solid, 4% annual growth in purchase origination volume," Fratantoni said.
The number of homes for sale remains near record lows, fueling fierce competition among buyers vying for fewer homes. English said bidding wars are common, often driving the sale price above what the owner was asking.
But Chattanooga's inventory did improve a bit last month and economists forecast that higher interest rates will limit demand for home purchases.
"It's hard to believe, but I do think it's going to be tougher this year, in some respects, than it was in previous years," Danielle Hale, Realtor.com's chief economist, told the Associated Press. "So far, at least, we have seen the number of homes for sale continue to decline and prices continue to rise. Those two factors combined suggest that the competitive market is going to keep buyers on their toes."