Here’s how Knoxville’s housing market could impact you this year
Housing prices are likely to stay elevated and inventory is not expected to increase significantly in the near term. As a result, home sales will likely experience a downturn in 2023.
Are houses still expensive? Will you be able to buy one this year? If you keep renting, how much more will you have to pay?
The Knoxville Area Association of Realtors (KAAR) answers all these questions in its newly-released 2023 State of Housing Report, an annual analysis of the local housing and real estate market and its outlook for the upcoming year that takes into account the waning effects of the pandemic and persistent impact of high interest rates.
“Our market is continuing to cool from the intense activity of recent years,” said Hancen Sale, KAAR’s Government Affairs and Policy Director. “The triple threat of high home prices, rising mortgage rates, and low inventory have weighed heavily on demand, pushing housing affordability to its lowest levels since at least the 1980s. Better understanding the challenges ahead of us will help buyers and sellers, policymakers and community leaders make well-informed decisions moving forward.”
Key findings and expectations from the report include:
- Home price growth is decelerating but remains above the historic average. Home prices in the Knoxville metropolitan area rose 15.9 percent from the previous year in Q4 2022, according to the FHFA House Price Index (HPI).
- Rent growth remains high, although rent increases have moderated in recent weeks, with rents in the Knoxville metropolitan area up 14.06 percent from the previous year in Q4 2022 – outpacing the rent growth of 6.60 percent nationally during the same period.
- After a record-breaking year in 2021, home sales declined 9 percent year-over-year in 2022. The deceleration in home sales will likely continue this year, with home sales forecasted to decline between 10 percent and 12 percent in 2023.
- Despite the expected decline in home sales due to deteriorating affordability conditions, a lack of inventory continues to place upward pressure on prices, with home prices forecasted to
increase between 3 percent and 5 percent in 2023.
- Knoxville’s rental market is poised to experience moderate growth in 2023, with rents forecasted to grow around 4 percent next year.
- After reaching an all-time high of 98.86 percent in Q4 2021, the rental occupancy rate is forecasted to decline to an average of 96.5 percent in 2023.
Population trends are projected to influence housing demand. First-time homebuyers, aging individuals, and those from underrepresented and disadvantaged backgrounds are experiencing a shortage of housing options that are affordable and make sense for their lifestyles. Currently, the supply of entry-level homes is severely constrained, 70 percent of the region’s housing stock is considered cost-prohibited for seniors on a fixed income, and homeownership among Black and Hispanic/Latino households is more than 30 percent lower than that of white families.
“Housing is the backbone of our region’s economy and key to achieving economic mobility and prosperity for so many families in our area,” Sale said. “Our region’s natural beauty and vibrancy are why so many choose to call East Tennessee home. Now, our challenge is to address the rising cost of housing within our market to make living, working, and enjoying our region more attainable.”
You can dig into all the details of the 41-page report here.