If you’ve been waiting for prices to drop so you can buy a home, the news isn’t good. Realtor.com predicts that home prices and mortgage rates will continue to rise, home sales will decline as buyers run out of home ownership, and the housing market will continue to cool. And that’s exactly what’s happening locally, says the Northeast Tennessee Association of Realtors (NETAR).
Realtor.com says the bright spot for frustrated homebuyers is that the number of homes on the market is expected to increase.
“The number of homes for sale right now is so low that it creates highly competitive conditions for buyers, which is a huge challenge,” says Danielle Hill, chief economist at Realtor.com. “More homes for sale will help bring more balance and rationality to the market.”
Local home sales may be slowing, but not prices. It hit new highs last month, according to NETAR. The typical home sales price increased by $40,100 from May of last year. Typical prices in area cities and community sub-markets ranged from $395,000 in Jonesboro to $150,000 in Mount Carmel. Thirteen of the 15 submarkets had a sales price of $200,000 or more.
“While it is inevitable that higher prices will slow in the coming months, that has not yet happened,” said Rick Shantry, president of NETAR. Many of the metrics NETAR uses in the monthly reports show a decline compared to last year. But last year was the strongest local housing market anyone could remember. Monthly comparisons tell a story that in some ways is typical of home buying and selling season.”
For example, the average listing price has gone up every month this year. Last month it was about $19,000 higher than it was in April. The typical sales price for May was $30,000 higher than April. Chantry said that although new listings and a lack of sales have made a slight improvement to inventory, it’s still very tight.
There were 770 closures in the region last month, down 34 from April and 58 less than in May last year. Last month’s usual sales price of $250,000 was up 31.6% ($40,100) from a year ago. The median was $303,622, an increase of 31% ($71,598). There were 101 sales in the $500,000 and above price range in the last month.
So far this year, 3,600 existing home sales have closed. This is 138 less than the first five months of last year.
“From a trend perspective, we are seeing a decrease in sales and a continuation of price increases,” Chantry said.
Realtor.com says mortgage rates are now expected to reach 5.5% by the end of the year — a rate that is expected to continue to marginalize buyers already grappling with rising home prices. Initially, economists at Realtor.com predicted they would only reach 3.6% for 30-year fixed-rate loans. However, rates rose to 5.3% last month before settling at around 5.1%, according to Freddie Mac data.
Low expectations were set before persistent inflation became a thorn in the US Federal Reserve’s side. Realtor says the Fed is now very intent on taming those runaway rates by raising interest rates – causing historically low mortgage rates to soar.
“High interest rates have changed the fundamentals of the economy as well as the housing market. So many homebuyers are taking out mortgages that higher rates affect the cost of home ownership,” Hill says. “It causes buyers to make difficult trade-offs and disrupts the housing market.”
Buyers have descended into the housing market, racing to win bidding wars before prices rise any further. Realtor.com economists believe prices will be 6.6% higher by the end of the year. While this is still a conservative estimate given the recent rally in home prices, which rose 17.6% year-over-year in May, the rise is more than double the estimate economists had in their original forecast.
“The market is in transition,” Hill says. “The housing market over the past few years has continued to grow more and become more competitive. (Now) it will feel a little bit like an injury. The market is still competitive, but the tide is changing.”
If you are buying a home, you should consider whether it is in your financial interest to wait or go broke now.