Pending home sales dropped 5.5% nationwide, contrary to the expectations of a modest 0.4% increase. In this post, we explore the specifics of the South’s housing market performance and its implications for buyers and sellers in the region.

The decline in the South outpaced the nation at 6.5%. The Pending Home Sales Index (PHSI) for the South fell to 83.5, signaling a significant slowdown in market activity. 

Pending home sales in the South declined by 11.5% compared to July 2023, a more significant drop than the national average of 8.5%. This stark contrast highlights the region-specific challenges faced by the Southern housing market.

“A sales recovery did not occur in midsummer,” said NAR Chief Economist Lawrence Yun. “The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming U.S. presidential election”.

Several factors contributed to the sharp decline in pending home sales in the South

• Affordability – the rising home prices is making it difficult for potential buyers to enter the market.

• Economic Conditions – The U.S. job growth hasn’t been sufficient enough to counteract other negative factors affecting home sales.

• Interest Rates – Interest rates remain higher than in recent years, impacting buyer purchasing power.

• Housing Supply – The Real Estate market in Sevier County, Tennessee is experiencing high inventory levels, despite the low inventory issues faced in other regions.

• Political Uncertainty – The upcoming U.S. presidential election has introduced a “wait-and-see” attitude among some potential buyers, as noted by NAR Chief Economist Lawrence Yun.

Implications for Southern Home Buyers and Sellers

For potential buyers in the Southern U.S., the current market conditions present both challenges and opportunities:

Opportunities 

• With high inventory levels, buyers have more options, potentially giving them more negotiating power.
• Falling mortgage rates could make home purchases more affordable, despite ongoing affordability challenges.

Challenges

• With high inventory and declining sales in Sevier County, Tennessee, sellers may need to adjust their price expectations to attract buyers.
• Patience may be key, as the market works through its current challenges.

Looking ahead, the falling mortgage rates, high inventory levels, and broader economic factors will likely shape the market’s performance. 

While the current situation presents obstacles, it also offers opportunities for both buyers and sellers who are well-informed and prepared to navigate these complex conditions.

The short term rental market in the United States is on the upswing in 2024. 

June saw a nearly 10% increase in demand compared to last year, and for the first time since the pandemic, occupancy levels exceeded those of 2019. 

This means more people are choosing short term rentals for their vacations! 

What’s Driving the Upswing?

• Improved Economic Conditions

More people are willing to spend money on travel because the economy is stabilizing and inflation is cooling down. 

The Federal Reserve is even considering cutting interest rates, which could make mortgages cheaper, potentially lowering costs for property owners.

• Fewer New Rentals

Fewer rental properties are entering the market, which is good news for existing owners, because it means current rentals are in higher demand and can charge more per night.

• Seasonal Trends

The summer travel season is particularly strong this year. 

The Labor Day Holiday dates might shift some travel from September, making August especially busy.

What does the Short Term Rental Property Market Heating Up Mean for you?

– For Travelers: The sooner you book your rental, the better! Demand is high, which means prices could go up. 

– For Property Owners: There is more demand for your home, so you could potentially raise your rates. 

Looking Forward: 2024 and Beyond

Even with current high mortgage rates, the demand for short-term rentals is set to grow. 

By the end of 2024:

• Demand could increase by around 5.9%, and even more in 2025. This is driven by a combination of stable economic conditions, more people feeling comfortable traveling, and a balanced supply of available rentals.
• Occupancy rates are stabilizing! This means more properties are being rented out, which is good news for owners.
• Average Daily Rates (ADRs), or the average price paid for a rental per night, have gone up by 2.8%, and it looks like we’ll see a 2.0% increase for the entire year. The increase in ADRs reflects a healthier market where people are willing to pay more for quality rentals.

Challenges and Considerations

The Short Term Rental is looking good, but there are a few things to be aware of:

• High mortgage rates continue to make it expensive for new investors to enter the market. This could limit the growth of new properties, keeping supply tight. However, for current owners, this means less competition and a stronger market position.
• While the Federal Reserve may cut interest rates, these changes take time. So, while a soft landing is possible, it’s not guaranteed. It’s important to remain cautious.

The U.S. short-term rental market is thriving in 2024, with strong demand, limited new supply, and increasing rates. 

This creates a favorable environment for both travelers and property owners!

For more detailed insights and data, you can explore AirDNA’s June 2024 review and AirDNA’s Mid-Year Outlook 2024-2025

2023 has been a trying time in the housing market. In this post, we’ll explore the things that shaped the housing market in 2023 and take a look at the forecasts for the real estate market in 2024. 

Factors Behind the 2023 Housing Market Slowdown

The real estate market in 2023 was affected by rising home prices, increased mortgage rates, and low inventory. 

The spike in mortgage rates, which surged beyond 8% for the first time in over two decades, became a barrier for many potential homebuyers. 

This increase not only diminished buying power but also sidelined a portion of the market.

The Federal Reserve’s response to inflation involved a hike in interest rates which further increased the market’s slowdown.

New listings dropped to their lowest level on record – just 5.4 million new listings in 2023, the lowest level on record and a massive 16.4% drop from 2022. 

“The unusual combination of low supply and low demand caused home prices to remain elevated throughout the year, which was bad news for pretty much everyone,” laments Daryl Fairweather, Redfin Senior Chief Economist. “The market was extraordinary; it felt hot, even though very few homes changed hands.”

Housing Inventory and Price Trends in 2023

Despite the overall market slowdown, the prices of homes continued on an upward trajectory. This was primarily fueled by the shortage of inventory, a challenge that has been lingering for years.

The supply of homes remained significantly below the levels considered healthy for a balanced market. 

Reports indicated that the housing inventory was about a two-and-a-half-month supply, starkly lower than the ideal six-month supply. 

This scarcity of available homes for sale not only limited options for buyers but also kept the market tilted in favor of sellers. 

Predictions for the Housing Market in 2024

The housing market is poised for a period of gradual recovery and adjustment. 

Industry experts predict a few key trends that could shape the real estate landscape in the coming year:

• Mortgage Rates: After reaching two-decade highs in 2023, mortgage rates are expected to start declining, providing some relief to potential homebuyers. While the rates are anticipated to ease, they are likely to remain within the 6% to 7% range, not low enough to significantly boost the inventory of existing homes​​.
• Housing Inventory: The inventory of homes for sale is forecasted to see a modest increase. This is partly due to more sellers expected to enter the market, having delayed selling in the past two years. A 30% increase in housing inventory is anticipated, which could help balance the demand-supply dynamics to some extent.
• Home Prices: Despite the challenges, house prices are projected to continue their upward trend, albeit at a slower rate compared to 2023. The prediction is a national increase of around 2.7% in home prices for 2024​​.
• Market Recovery: Certain U.S. markets are expected to experience a faster recovery in home sales. This recovery is likely to be influenced by the regional economic conditions and the specific characteristics of local housing markets

“The demand for housing will recover from falling mortgage rates and rising income,” Yun said. “In addition, housing inventory is expected to rise by around 30% as more sellers begin to list after delaying selling over the past two years.”

In summary, while the housing market in 2024 may not witness a dramatic turnaround, the expected easing of mortgage rates and a slight improvement in inventory levels hint at a more favorable environment for both buyers and sellers. This anticipated shift could mark the beginning of a new phase in the housing market. While the full impact of these changes remains to be seen, they signal a move towards greater stability and opportunity in the real estate sector.

The mortgage industry has been closely following the recent decision made by the Federal Reserve (Fed) to raise the interest rates. The Fed’s action to slow down the pace of increases sends a clear message that the central bank is seeing progress in its battle with inflation. This article provides an in-depth analysis of the current state of mortgage rates and what it means for homebuyers and homeowners.

How the Fed Influences Mortgage Rates

The Fed does not set the interest rates directly, but its actions do have an impact on them. Mortgage rates tend to track the yield on 10-year US Treasury bonds, which is influenced by the Fed’s actions, expectations, and investors’ reactions. When Treasury yields go up, so do mortgage rates, and when they go down, mortgage rates tend to follow.

“The Federal Reserve controls short-term rates, but long-term rates, including 30-year mortgage rates, are a function of market expectations for the path of the economy and investors are betting that the economic slowdown and the Fed’s eventual victory over inflation will result in lower rates over time.” –  Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association. 

Expert Predictions for February

According to Rick Sharga, Executive Vice President of Market Intelligence for ATTOM, “unless the Fed unexpectedly raises the Fed Funds rate dramatically at its next meeting, or we get a surprisingly bad inflation report, it seems most likely that mortgage rates will plateau or perhaps decline slightly.” Sharga expects rates to average between 6.0% and 6.25% for the 30-year mortgage and between 5.25% and 5.50% for the 15-year mortgage loan in February.”

Nadia Evangelou, Senior Economist and Director of Real Estate Research for the National Association of Realtors, also predicts a continued downward trend in mortgage rates for February. 

What the Market Thinks

After the recent Fed meeting, Chairman Jerome Powell acknowledged that the US has made progress on inflation, but stopped short of saying that inflation was tamed. 

A word from our friends at Fairway Mortgage

“The Fed raised the fed funds rate by .25% as expected.  We knew this – lately we always know this going in. What markets were interested in was the Fed statement and Fed Chair Jerome Powell’s statement and subsequent press conference. Right now mortgage bonds and treasuries are rallying (mortgage rates are getting better) and stocks are rallying on the news.” – Corey Freels 

Powell’s comments and the market’s reaction indicate that the market believes inflation is cooling, which means mortgage rates are coming down.

In conclusion, the recent Fed decision to raise interest rates has had a positive impact on the mortgage industry, with experts predicting continued downward trends in mortgage rates. Homebuyers and homeowners should keep an eye on the market and consider taking advantage of these favorable conditions while they last.

Our friends at the LTW Group shared with us a presentation by Chief Market Strategist for Residential Finance, Barry Habib.

He answered the questions:

• What’s going to happen with interest rates?
• Is the value of my home going to decrease?
• What’s the forecast for the real estate market in 2023?

What is going to happen with  interest rates?!

The ten year treasury bond and the mortgage rate have a normal spread of 175 – 200bp. 

Should this trend continue – Barry Habib, chief market strategist for Residential Finance, predicts that treasury bonds will come down to three which means mortgage rates will be closer to 5%.

Will the value of my home decrease?

According to the S&P Case-Shiller U.S. National House Price Index, during 8 of the last 9 recessions homes home values went up during and after the recession. 

The only time this didn’t happen was during 2006. 

In 2006 builders built more homes than ever before. 

Household formations dropped! (A household formation is the formation of a new household – think when your adult child moves out of your home.) 

Why did household formations drop in 2006?

On average, an adult moves out of their parents home at the age of 33. When we step back to look at the birth rates of Generation X we see a sharp decline. 

Are we on the brink of another housing bubble?

Quick answer – no! There are no outlandish mortgaging programs out there right now. 

Ultimately, a housing bubble comes down to supply and demand. 

What effects supply?

• Builders finishing homes 
• The number of homes that have to be retired. 

Where does demand come from?

• Household formations. 

Babib’s forecast for 2023:

• Low single digit appreciation
• Rents will continue to rise

Huge thanks to our friends at the LTW Group for sharing this fantastic information with us!! 

The LTW Group has a ton of resources and programs that allow buying right now a painless process. Reach out to them today! 

A question everyone wishes we knew the answers to!

While we might not know for sure, we can share a few opinions from industry experts.

Are housing prices going to drop in Gatlinburg, Tennessee?

The short answer: Prices are likely to drop further, but not by as much as they did during the housing bust. 

“It was different in 2008, 2009 because that drop in prices was because of a push from sellers,” said Jeff Tucker, senior economist at Zillow. “Because of foreclosures and short sales there were a lot of extremely motivated sellers who were willing to take a loss on their homes.”

The previous housing crash the inventory of homes for sale was 4x high that it is now! Current inventory is still lower than pre-pandemic levels, which is keeping prices strong.

How much are housing prices going to drop?

“Unlike the run-up in prices during the pandemic that caused home values in markets across the country to surge, the cooling off will be more regional, said Tucker.”

Tucker predicts there will be a small decline in the Southeast.

What does a housing price decline mean for sellers?

Because we’re likely to see a smaller decline in prices in our area – it’s still a great time to sell.

Steven James, the president and chief executive of Berkshire Hathaway HomeServices New York Properties, suggests, “The best strategy for sellers is to start at the right price. The last thing you want in a shifting market is to have something sit.”

We keep a beat on the market statistics monthly, you can see the latest one here. 

Are sellers still receiving multiple offers? Are homes still selling over asking?

Lawrence Yun, chief chief economist at the NAR, answers these questions on a National level, ““Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory. The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010, when inventory levels were four times higher than they are today.”

Next week we’ll explore what this looks like locally – while we can’t provide information about multiple offers, we CAN answer some questions about list to sale price ratios! 

Are prices falling?

Yun says, “Tight supply continues to put pressure on home prices, with an increase of 8.4% from September 2021. Prices climbed at all price points. This makes 127 consecutive months of annual increases.”

“Prices are cooling, however. September marked the third straight month-to-month price decline, which usually fall this time of this year.”

Do we know if they will continue to fall?

Not quite yet, but we’ll keep you informed monthly with market statistics. Did you see last month’s? Check it out here 

During the spring home buying boom Zillow made a big claim – home prices would would soar another 17.8% between February 2022 and February 2023. 

Weeks later the Pandemic fizzled.. Zillow slashed its home price outlook. 

In September, the outlook was revised down to 1.2%

Now Zillow expects the U.S. Home values to rise 1.4% 

“Back in May, Moody’s Analytics chief economist Mark Zandi told Fortune that rising mortgage rates coupled with “overvalued” home prices would push the U.S. housing market into a housing correction. A housing correction being a period where the U.S. housing market—which got priced to 3% mortgage rates—would work towards equilibrium. In every market, that’d translate into a sharp decline in home sales. It’d also, Zandi said, put frothy markets at risk of home price corrections.

That’s exactly what we saw this summer: Home sales plummeted across the nation, and frothy markets in the Western half of the country also saw declining home prices.”

Zillow researchers write, “”Across the country, affordability challenges have pushed potential buyers to the sidelines. Of course, this demand destruction has been more pronounced in some markets than in others. Markets with the highest prices a year ago saw disproportionately larger declines in active demand in the 12 months that followed.”

Heading into 2023 Zillow predicts the home price correction will loose steam in some markets while it picks up steam in other places. 

Both Knoxville and Morristown are predicted to rise 5% over the coming year. 

Read more here!