Why Are There Not Enough Homes For Sale In Knoxville?

Ask most Knoxville real estate agents and they will tell you that there is a shortage of good homes for sale in Knoxville.  There are plenty of buyers in the market right now, and many are having trouble finding a home that suits them.  In fact, the supply of homes in Knoxville has DECREASED by 15.6% from one year ago and is DOWN 8.1% year to date.  Why is that?

The “Profile of Home Buyers and Sellers Report” released by the National Association of REALTORS shows that the median tenure, or the amount of time a person lives in their home before buying another, has increased from 6 years to 9 years within the last 4 years. 

Here are the 5 reasons I believe we are seeing a shortage of homes for sale in Knoxville:

1. There are still some sellers who are underwater in their mortgages.    Also in the “Profile of Home Buyers and Sellers Report”, seller’s were asked if they wanted to sell earlier but waited because their home was worth less than their mortgage.  13% of recent sellers who went on to purchase another home reported being in this situation.  That is 13% who sold and bought again, so that doesn’t take into account the sellers still waiting.
2. Sellers whose property values decreased are waiting to build up their equity.  Similar to reason #1, these sellers saw the value of their home decrease during the downturn in the market.  Typically, most seller’s will use the equity in the home they are selling to provide the down payment money on the home they are buying.  With many lenders looking for 20% down payment,  these sellers are waiting for their equity to build back up so they can have enough money for a down payment on a new home.
3. As home prices dropped a few years ago and interest rates hit record lows, housing affordability hit record levels as well.  This allowed those buying at this time, to buy more home for the money than was possible in the past.  Because of this, first time home buyers and other buyers who might normally be trading up to a larger or more upgraded home aren’t doing so.  They purchased it the first go around, most likely with a great interest rate that is keeping their payment low, and therefore are choosing to stay in their homes longer.  The same holds true for sellers who refinanced their homes at historically low interest rates.  Those low, locked in rates, make buying a new home at a higher interest rate that much harder of a decision.
4. The inventory of new construction homes as well as distressed properties are both very low in Knoxville.  These are two categories that historically supplement existing housing inventory.  While low amounts of distressed property is not a bad thing, until new home construction is ramped up, we may continue to see low inventory numbers in general.  Lack of new construction is pushing buyers into purchasing existing homes, which puts further downward pressure on inventory and upward pressure on existing home prices.
5. Those of us who have lived in Knoxville for at least 4 years know that 2011 brought a severe hail storm through the area that did some major damage to homes.  Areas like Farragut and many other communities throughout Knoxville were hammered by the storm.  As a result, most homeowners not only got new roofs paid for by their insurance, but new windows, siding, decks, patios, doors, and more.  Many owners were able to do major updates on their homes with little, to no money out of pocket.  New decks and patios turned into new outdoor entertaining spaces.  New windows and doors turned into lower utility costs. New siding turned a tired looking house into something fresh.  I believe this is another major reason for our inventory shortage.  Many homeowners pushed “refresh” on their existing homes in 2011-2012,  and had that not happened, they would probably be a large pool of sellers looking to upgrade and putting their homes on the market.

Whether you are a seller looking to take advantage of low competition or a buyer looking for guidance in winning against the competition, contact me, Troy Stavros with Gables & Gates, REALTORS to discuss your goals and formulate a game plan.