Mortgage Rates Today – Why real estate market is so competitive
From an outside perspective, Knoxville’s real estate market is booming.
People from across the country are relocating to live and work in East Tennessee, and homes are sold within days of listing. It looks like an opportune time for builders, sellers and real estate agents to cash in.
But imbalanced supply and demand has insiders worried.
“I’ve seen sellers’ markets and buyers’ markets, but nothing where it seems like it’s both the perfect opportunity for all parties and, at the same time, the worst time to be trying to do anything,” said Kanika White, a local real estate agent and board member of Knoxville’s Community Development Corp.
Let’s break down why the market is on a wild ride and what to expect in the months ahead.
The supply and demand debacle
The basics of business – supply and demand – are sending shockwaves of anxiety through the real estate world. The coronavirus pandemic and even the Great Recession from more than a decade ago are influencing imbalances in the market.
So many factors are at play.
According to the Knoxville Area Association of Realtors, seasonally adjusted home sales in the Knoxville area declined 6.1% in April despite continued year-over-year gains. It was the fourth month in a row sales fell.
On top of that, housing inventory also dropped for the sixth consecutive month in April — down 60% from 2020 — and is expected to last less than one month at the current sales pace, meaning if more homes aren’t put on the market, soon there won’t be anything left for sale.
Hancen Sale, governmental affairs and policy director for the Knoxville Area Association of Realtors, told Knox News a healthy market should have “around six months of supply.”
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Dale Akins, president of the Market Edge, told Knox News the 2008 housing crisis caused many construction workers to find jobs in other fields, contributing to a labor discrepancy today.
The “not in my backyard” mentality is common across Knox County, too, making it difficult to break ground on new homes.
COVID-19 also caused major disruptions.
Prices of building materials like lumber show no signs of going down. The latest Producer price Index report released by the Bureau of Labor Statistics revealed a 1.7% increase in costs in April and 12.4% over the past year. Production and delivery delays related to the virus are persistent as well, meaning it takes significantly more time for builders to finish projects.
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Stifled supply isn’t an issue only in Knoxville. It’s hindering home sales all across America, especially in Southeastern midsize cities long considered affordable.
“The big thing is we’re missing out on a lot of gains that could be had if we had that supply available,” Sale said about the lack of new homes. “If we don’t keep adding to our supply at the rate we need to, we market ourselves as an affordable place to live, but that will become increasingly less true.”
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It’s the perfect storm. Despite dwindling supply, demand and prices are surging with no end in sight because of historically low mortgage interest rates and the desirable quality of life in our region.
No one knows what will happen next.
“After talking to other people in the industry, they have all said that they have never seen the market like this and that they cannot anticipate how it will end or where it will go,” White said. “It’s all new to everybody.”
Is Knoxville’s market a bubble?
With all the mentions of 2008’s disastrous crash, many wonder whether Knoxville’s real estate market is becoming a bubble. This time, things feel different.
A housing bubble happens when demand rises despite limited supply. Those looking to make money buy properties in hopes of making a quick buck after renovations, which further drives up demand. Eventually, demand decreases or stagnates at the same time supply increases, resulting in a steep drop in prices – and a burst bubble.
“I am very strong in my belief that this market is not (a bubble),” Sale said. “From face value, there is very low supply, quickly rising prices and tons of home sales. That looks like the housing bubble in 2008. From a high level, yeah they look the same, but the underlying structures at play and forces at play in this market are very, very different than 2008.”
The mortgage market is stable as a result of changes made after 2008, including stricter lending standards that favor borrowers with strong credit history and sizable down payments. Loans to high-risk borrowers made up almost 40% of mortgages from 2004 to 2006. Today, those risky products represent just 2% of mortgages, Morgan Stanley reports.
The pandemic itself plays a part in Sale’s prediction as well. Like working from home, he said a hot real estate market “is a new normal.”
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“Knoxville’s economy doesn’t lend itself to the boom-bust cycle that you see nationally,” Sale said. “We have a very resilient economy. It’s fairly stable and, even during the 2008 crisis, it was not as bad and not as pronounced in Knoxville.”
Property price projections
Real estate experts anticipate rising mortgage rates, plateauing home prices and a replenished supply in the coming months, which will stabilize the market. However, they’re not yet dismissing the dilemma created by low supply and high demand.
“I think (real estate agents) are feeling some cautious optimism, but there’s definitely some looming concern, especially for those realtors who are working with first-time homebuyers and lower-income buyers,” Sale said.
Buyers in the best position are those looking to live in a home long-term, but White said no matter a person’s price point, “they can find what they want if they can be patient through the process.”
Akins and Sale agree it will take patience, planning and proactiveness from everyone in Knoxville real estate to prevent prices seen in major metro markets and a housing collapse in 2021.
“We really need to start focusing on the problems in front of us before they become something that’s out of our hands to solve,” Sale said.
Mortgage Rates Today – Why real estate market is so competitive
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