KNOXVILLE, Tenn. (WATE) — The Knoxville Area Association of Realtors released its 2023 Housing Report and unveiled it at its Housing Market Forecast session on Friday. Among the issues concerning the housing market, KAAR notes in its report that “the pandemic-inducing housing frenzy has come to its inevitable end.” But affordability is a big constraint for potential homebuyers.
At the event Friday, KAAR gave a presentation of its annual report providing an outlook for the East Tennessee housing market for the upcoming year. Within the report which covers economic conditions, inflation and mortgage rates, affordability and the rental market, East Tennessee’s “extraordinary growth” is at the forefront of the issues. Waning impacts from the pandemic era of migration, fiscal stimulus and low borrowing costs were also noted.
In a nutshell, the Knoxville area saw record home sales with the highest level of mortgage rates in more than a decade amid concerns about inflation and a substantial supply-demand imbalance; now, the housing market conditions hang in the balance of the mortgage rates trajectory and if the United States is able to avoid a significant recession. The 2023 Local Housing Market Forecast breaks down these issues within the report.
For housing availability, the inventory of homes listed in the lower price range “remains the most constrained segment in the market,” the report states, while overall inventory is expected to be constrained or limited.
The housing market in East Tennessee is poised to contract in 2023, the report states, “as elevated borrowing costs, higher home prices and uncertain economic conditions slow buyer and seller activity.”
A significant decline in home prices remains unlikely, while the East Tennessee housing market in 2023 could hinge on mortgage rate trajectories and if the U.S. avoids a significant recession.
For renters, the report doesn’t spell positivity, as Knoxville’s rental market is more expensive than ever after experiencing what the report describes as “tremendous growth” in 2022 with demand reaching its highest level on record.
As of the third quarter of 2022, the report notes that effective rents in Knoxville have risen 47% since 2019, “meaning today’s typical monthly rent payment is nearly $450 more expensive than pre-pandemic.” For 2023, KAAR expects Knoxville’s rental market to see moderate growth.
The rental occupancy rate is still hovering near a record high at 98% as of the second quarter of 2022. But that is expected to decline to an average of 96.5% across 2023. The report also notes how a substantial number of units that are scheduled to become available over the next year could help taper down the rental occupancy rate.
A few highlights listed in the report note how East Tennessee’s housing market is expected to recede in 2023:
- Home price growth is decelerating but remains above the historic range
- Rent growth remains high, although rent increases have moderated in recent weeks
- After a record-breaking year, home sales are expected to decline 10% year-over-year
- A lack of inventory continues to place upward pressure on prices, with home prices forecasted to increase between 3-5%
- Knoxville’s rental market is expected to experience moderate growth
- The rental occupancy rate is forecasted to decline to an average of 96.5%
The KAAR report also notes how housing affordability plays a role in demand: “Demand is waning because a growing share of households cannot afford to purchase a home, not because they don’t want to.”
The borrowing costs have been elevated with higher monthly mortgage payments, which have eroded affordability over the past year, according to the report.
“Homebuyers need to earn substantially more money than they did just a year ago to purchase the typical home,” the report states.
That’s because the median sale price rose from 10.5% from October 2021 to October 2022, then higher interest rates resulted in the monthly payment increasing more than 57% over the same period.
View the full report below:
