By Mark Blazek, President
Greater Chattanooga Association of REALTORS®
In one of my first columns, I shared the year’s predictions from industry “experts” of what we could expect in the housing market. As we wrap up 2014, let’s see how things fared.
“Buyer confidence” is the catch phrase when referring to attitudes that housing prices have bottomed out. As 2013 progressed, we expected more and more buyers to enter the housing market. According to consumer polls, the confidence level held steady, yet it was not until just this month that polls showed a slight increase in buyer confidence. However, actions speak louder than words, and many consumers remain on the fence. Some hesitancy to enter the housing market is based not on skepticism towards making a good long-term investment but rather the continued low inventory.
We hoped more first-time buyers would have entered the market by year’s end, but the National Association of Realtors (NAR) reports that only 28 % of purchases mid-year were comprised of first-time homebuyers. NAR’s chief economist Lawrence Yun commented that first-time buyers are “held back by the friction of right credit and very limited inventory in the lower price ranges in most of the U.S.”
Another factor keeping some buyers at bay are interest rates, which were predicted to remain steady throughout 2013 at 4.0 and rise to 4.6% by 2014. It seems we are ahead of the curve on this one with rates already slightly above 4%.
Nationally, home prices were on the rise when we began the year, and locally, that continues to ring true. In the Greater Chattanooga market, the median sales price has increased 9.6% this year, and that has been a year-to-date trend with each month this year more times than not.
Rising home prices is affecting the continued downward trend in foreclosure activity, and we are seeing fewer foreclosure bargains. As anticipated, foreclosures continue to slow, with third quarter national reports showing 36 consecutive months of a downward trend in foreclosure activity. As predicted when we began 2013, the equity position of thousands of borrowers has improved with rising home prices, righting many upside-down loans.
With the expected decrease in foreclosure activity, we assumed we would see a rise in short sale activity. Yet, we see a downward trend there, too. According to Daren Blomquist, vice president of RealtyTrac, “Rising home prices in many markets are stunting the continued growth of short sales by reducing incentive for both underwater homeowners and lenders. Underwater homeowners may be willing to stick it out a few more months or even years in the hope that they will be able to walk away with money at the closing table and without a hit to their credit rating, and for lenders a failed short sale may no longer translate into bigger losses down the road given that average prices of bank-owned homes are rising — at a faster pace than non-distressed home prices in many markets.”
Fewer foreclosures and fewer short sales is a partial factor in inventory remaining low, yet there is some relief in sight. REALTOR® Magazine recently reported that the construction of single-family homes and apartments are on the fastest pace since February 2008. No, that is not a typo – 2008! David Crowe, chief economist for the National Association of Home Builders, reinforced this trend, saying “Single-family and multifamily starts are at five-year highs, providing further evidence that the recovery is here to stay.”
More positive news for inventory is found locally, with Greater Chattanooga recently experiencing 10 consecutive weeks of year-to-date inventory increases, and we anticipate that this trend will continue in 2014.
Nationally, the volume of existing home sales was forecasted to rise 8.7%. And I am pleased that locally our 12-month average shows a 5.6% increase. During the housing boom and subsequent bubble, the Greater Chattanooga market did not experience the extreme highs and lows as did other markets. Thus, the current upward trend for home sales is what one would expect and is an indicator of the health of our local market.