According to the National Association of REALTORS, the national median home price saw the strongest year-over-year increase in seven years as a growing number of metropolitan areas posted higher median values in the fourth quarter of 2012.

What are the factors causing the price increases of today’s real estate in Knoxville and beyond?

1) Attractive affordability conditions:

• Mortgage interest rates are hovering near record lows.
• Quoting NAR President Gary Thomas, “In reality, home prices overcorrected on the downside and homes in most of the country were selling for less than replacement construction costs, which means they were undervalued.”
• Lawrence Yun, Chief Ecomomist for NAR stated, “The housing affordability index shows that the national median income of families was almost double the income needed to buy a median-priced home in 2012, so most buyers are able to stay well within their means.”

2) Decreasing rent affordability (rising rent prices)

3) Demand for housing:

•  The population has been growing faster than overall inventory of Knoxville homes for sale.
•  Unsold inventory, nationally, is at the lowest level in 12 years.

4) Job creation:

•  Steady job creation leads to more buyers in the real estate market.

Troy Stavros, Broker and Partner with the 865 Real Estate team at Gables & Gates, REALTORS says, “These factors have not only increased the value of Knoxville real estate but have turned what was a buyer’s market no so long ago, into a seller’s market.”

The most detailed survey on the attitudes of consumers of its kind, the Fannie Mae National Housing Survey polled 1,003 Americans via live telephone interview to assess their attitudes toward the housing market and overall consumer confidence.

Troy Stavros, Broker and Partner with the 865 Real Estate team stated, “We see, on a daily basis, the increase in consumer confidence. The influx of buyers into the Knoxville real estate market, that is resulting in a dwindling inventory of Knoxville homes for sale, speaks volumes.” Echoing Stavros’ sentiments, the Senior Vice President and Chief Economist for Fannie Mae was quoted as saying, “”The housing market continues to firm, with consumer home price expectations for both rental and ownership properties near the strongest levels that we’ve seen in the survey’s two-and-a-half-year history. Concerns about job loss are waning as payrolls are growing – a trend that may give potential homebuyers more confidence that they can meet the financial obligation of homeownership. The upward trend over the past year and a half in the share of consumers who say it’s a good time to sell may reflect two related events. First, homeowners see that home prices are improving. Second, the number of homeowners who are underwater is declining, reducing a barrier for those owners who need to sell their home in order to buy a new one.”

The summary of the results of Fannie Mae’s January 2013 National Housing Survey are:

• More survey respondents believe now is a good time to sell a home (up 12% from last year’s results). Stavros says, now is a great time to be selling a home in Knoxville because the resulting low inventory levels has turned it into a seller’s market.
• Expectations around personal finances remain flat.
• Approximately 41% of respondents believe home prices will rise in the next 12 months. Stavros confirms that the Knoxville real estate prices have already risen and continue to do so.
• Respondents believing prices will continue to drop reached a low of 10%. Stavros stated, “There will always be that select few that refuse to believe that something positive is happening. Unfortunately those are the same folks that don’t take advantage of good market conditions, and watch as they pass them by.”
• 41% of respondents expect mortgage rates to rise in the coming year. Stavros believes Knoxville mortgage rates will rise slowly, but will stay below 4% for the rest of 2013.
• 50% or respondents believe rental prices will rise in the next 12 months. Stavros confirms that Knoxville rental prices are already on the rise, and the law of supply and demand will send them even higher.
• 65% of surveyed Americans said they would buy if moving in the near future.
• Approximately 43% of Americans see financial situations improving over the next year.
• 23% expect household incomes to rise significantly, an increase over a year ago.

Troy Stavros, Broker and Partner with the 865 Real Estate team states, “The old adage of supply and demand is at it again. Home prices are on the rise because the number of Knoxville homes for sale continues to dwindle.” According to the latest research numbers from the National Association of Realtors, the inventory of homes for sale dropped 8.5% from November, 21.6% from one year earlier, and is at the lowest level since January of 2001.

So why are we seeing inventory of Knoxville homes for sale drop? Here are the reasons:

* Many homeowners still owe more on homes than the current market value and are not willing to bring money to the closing table.

* Many homeowners who might typically be looking to “trade up” have lost the equity necessary to do so (home equity in a primary residence, built over time, is usually the main source of down payment funds in a trade up situation).

* Sellers, feeling the market and prices are still close to bottom levels, are waiting in hopes of selling at a higher price in the future.

* Investors (individual and institutional) are buying homes in bulk and renting them, instead of putting them back on the market for sale.

* Banks are approving more short sales and loan modifications, leading to smaller numbers of foreclosed homes hitting the market for sale.

* Tight lending guidelines for builders have limited the number of new homes hitting the market for sale.