Homebuyers are having a tough time in the Knoxville real estate market

    The turbulent real estate market in Knoxville has been driven by economic conditions, low mortgage rates, and increased immigration from outside the city.

    Knoxville, TN – Almost anyone looking for a home is going through a rough time in the Knoxville housing market. Home prices in the area have reached record levels, with the number of homes for sale in the city historically low.

    The Knoxville-area Association of Realtors released its 2022 Housing Situation Report on Tuesday. In it, they said improving economic conditions, lower mortgage rates and more immigration from outside the area had historically driven all types of housing in Knoxville.

    They said home prices have risen faster than ever, and there are fewer homes for sale than ever before.

    “As a result, housing costs grew by double digits from the previous year and continued to rise through the first months of 2022,” they said in the report. “The extent of the current gap between supply and demand – and the price growth it has stimulated – is truly unprecedented.”

    They also said that the market is different from the years before the Great Recession because the market is not affected by manipulative demand and loose lending standards. Homebuyers are more eligible than ever, they said, as mortgages went to borrowers with an average credit score of 778 in the fourth quarter of 2021.

    They also said that most homeowners have no debt and many own the majority of their homes, rather than most of them owned by a financial institution.

    “Under these circumstances, the exorbitant growth in house prices over the past two years should be recognized as the result of significant supply and demand imbalances — not a temporary or potentially explosive bubble,” the report says.

    He goes on to say that East Tennessee faces a crossroads: it can produce more homes to continue making it more affordable, or it can continue to push home ownership out of the reach of more people.

    They said that uncertainty related to the COVID-19 pandemic initially reduced the supply of homes for sale in Knoxville. Then, they said, the drop in supply caused a huge drop in supply, as people stuck to homes knowing they might not be able to find another home if they sold it.

    In a self-reinforcing cycle, fewer current homeowners are willing to put their homes on the market than in previous years given the limited number of homes for sale and concerns about finding their next home.

    They said Knox County had 1,332 active listings in 2019. That had dropped to just 324 by the end of 2021, and the county’s monthly new listings had fallen to record levels by the end of the year.

    Investors have also taken over the national housing market, restricting the number of homes available for average families looking to buy them. They said that many institutional investors have found that they can make more money by buying and renting single-family homes.

    “The latest Redfin report found that, nationally, investor entities purchased a record 18.4% share of all homes sold in the fourth quarter of 2021 – up from 12.6% a year earlier – with single family homes accounting for 3 out of every 4 investor purchases.” says the report. Of these purchases, 75.3% were paid in all cash.

    However, officials said investor interest in the Knoxville area has been at symbolic levels. They said investor purchases in Knox County remained relatively low compared to the national average, with investor purchases accounting for 11% of home sales in Knox County in 2021.

    However, most of these homes were mid-priced and high-end homes. Before the pandemic, the report says, investors were more interested in lower-priced homes. As a result, investors are competing with middle-class homebuyers more than ever before, according to the report.

    They also said that the Knoxville economy rebounded after the onset of the pandemic, with more jobs available and unemployment dropping to 2.9% in December 2021. Partly as a result of the economy, housing demand remains historically strong throughout the year.

    However, they said, the wage increases did not cover housing costs in the area. Before the COVID-19 pandemic, they said 83,500 Knoxville homes were spent more than 30% of their income on housing.

    “With home prices and rents growing at some of the fastest rates ever, housing affordability has worsened significantly since the pandemic and continued to decline in the early months of 2022,” they said. “In a public opinion poll commissioned by the Knoxville-area Association of Realtors in March 2021, more than 1 in 3 registered voters — 34 percent — indicated that affordability of housing in the Knoxville area was a major problem, while 28% said the same about Availability of housing.”

    They said that a household earning between $50,000 and $75,000 a year could only afford 36 percent of active housing stock in December 2021. Half of that was for people earning between $35,000 and $50,000.

    They said Knoxville recorded more home sales in 2021 than in any other recorded year. Meanwhile, the Knoxville-area median sales price increased 19.7% in 2021.

    The report says that while owning a home is cheaper than renting in most of eastern Tennessee, fewer people are getting the chance to own a home.

    The report says city leaders should consider finding ways to build more homes in places like Knoxville, where most people move. They also said they could develop a “light touch density” plan, which would build more single-family homes such as duplexes, triplexes and four floors.

    They also said that local government should move away from traditional zoning codes to ensure development decisions are “predictable, fair and cost-effective.”

    They also recommended building a database to identify vacant and abandoned properties that could be used to build more homes, while improving regional public transportation to expand areas people can move to.