By Karen Randolph
Many of the conditions the housing market in the Tri-Cities experienced in 2019 will not change much in 2020, but there are new opportunities and some challenges. New and existing home sales should increase, but do not be surprised if growth rates take a breather from the current pace.
Buyers can expect an increase in the number of new homes coming on the market, and the inventory of existing homes will continue to be tighter than normal. Mortgage rates are expected to average out at 3.88 percent. That rate is a mitigating factor for affordability concerns in a market where home prices have increased faster than wages.
One factor that boosts the potential for 2020 is the region’s Millennials being on the threshold of their prime home-buying years. The oldest are approaching 40, and the largest cohort of that generation will turn 30 next year. Locally, that accounts for about 60,000 people. Some are already homeowners; many are not. Will they become homeowners or continue as renters? So far, indicators point toward homeownership, but there are headwinds and some unknowns.
The big headwind – especially for first-time buyers – is affordability. In December, the National Association of Realtors held a real estate forecast summit to provide a year-end review and outlook on the real estate market and the economy. Continued slow housing growth and the lack of affordable housing stock were top concerns of 14 leading economists.
Housing Secretary Ben Carson calls housing affordability one of the real challenges of our time. This housing challenge is why the Trump administration changed financial rules to make townhomes and condominiums more attractive to buyers – especially first-time buyers. There has been increased local interest in those property types, but it has not become a groundswell due to the lack of inventory.
Construction of new homes with price points in the $200,000 range is planned. There is also building interest in modular homes on smaller lots with more affordable price points.
New homes in the $250,000 and up price range also continue to be in demand. Some of that demand is being driven by new residents who have sold properties in other states and relocated here with increased purchasing power. Sales of existing homes in that price range have also increased. Currently, market conditions for homes in the $200,000 to $399,999 price are in the normal market conditions range of six months inventory.
Another potential headwind is uncertainty. An election year – especially this one – can dampen consumer enthusiasm and send some to the sidelines to “wait and see what happens.” Although a recession is not likely in 2020, the economy is expected to soften. That softening could also be an anchor on consumer spending and increase homeowner texture.
Housing is the largest single consumer expense making it a major economic contributor. Last year sales of new and existing homes and commercial properties pumped $1.9 billion into the regional economy. That value does not account for economic multipliers that go with home sales.
Current conditions – including a labor market that continues adding jobs – point to a local 2020 real estate market that will be more competitive for both buyers and sellers and one that will hopefully face down economic doubts because the fundamentals for continued growth remain in place.
Karen Randolph served as president of the Northeast Tennessee Association of Realtors in 2019.