KAAR’s “2023 Housing Market Forecast” outlines challenges and bright spots for the region
Home prices and mortgage rates will stay high and Knoxville will be a top market to watch when it comes to housing in 2023, according to KAAR.
During a fast-paced Friday morning presentation with a lot of facts and figures, Hancen Sale, Government Affairs and Policy Director at Knoxville Area Association of REALTORS® (KAAR), unveiled the organization’s “2023 Housing Market Forecast” (KAAR – Forecast Report 2023). Interest in the report was so great that KAAR held two back-to-back sessions to meet demand.
Cutting to the chase, Sale offered five predictions for 2023. They were:
- It will be a “nobody’s market,” meaning neither those trying to sell or purchase a home will have an advantage.
- Like the 1980s, home sales will retreat but prices will hold on.
- Housing inventory will increase but remain below pre-pandemic levels across most of East Tennessee.
- Affordability (and mortgage rates) will define East Tennessee’s market in 2023.
- Finally, the region’s commercial real estate market will cool but stay strong during the year due to demand driven by office and multifamily sectors.
Sale (pictured at right at the briefing) prefaced his predictions by reviewing the past year and offering his analysis.
- Comparing Q3 of 2022 with the same quarter in 2021, the sale price of homes rose 18.3 percent.
- “We’re seeing a pullback in sellers, not just buyers,” according to input KAAR has received from realtors.
- In Q1 of 2022, there were six offers on average for each home on the market. That dropped to just 2.5 in Q3. Median days on the market is also rising fairly quickly.
- “A lot of the trends at the national level are not happening here,” Sale said, citing asking prices that are high and rising compared to other regions across the U.S. “Sales above a million dollars have boomed (here).”
He offered several interesting insights on mortgage rates.
- While most people voice concerns about the rapid increase in mortgage rates, the real rates, adjusted for inflation, have turned negative.
- That said, the increases in housing prices and mortgage rates have exacerbated challenges for first-time buyers in particular. In October 2021, a prospective buyer needed nearly $60,000 in annual household income to purchase a home. Just a year later, the figure rose to almost $94,000. “Two-thirds of the population can afford less that one-third of the active listings,” Sale said.
- One of the most interesting of the many data points he cited was one about a key reason listings have declined. “Seventy-three percent of outstanding mortgages are locked in a (mortgage) rates below four percent.”
Sale also talked about the fact that homebuilding in Knoxville is below all other Tennessee larger markets with the exception of Memphis. Citing data from 2021, he noted that new housing starts in Nashville were four times those in Knoxville, creating a clear housing shortage that did not happen overnight and will take years to address.
And, for those looking to rent rather than purchase, the inventory will still be tight, but new construction during 2023 will help. Sale’s prediction is that rental rates will rise by 4.2 percent.