A look at the conditions that made the Knoxville housing market leap to new levels
Laura Slyman has been playing the real estate game for the last 22 years. A second-generation real estate agent who swore she’d never get into the family business, Slyman—who owns Slyman Real Estate—works around the clock to get buyers and sellers into contracts. But the last 18 months have been different. “It’s completely different,” she says.
One of her last weekends in July, Slyman had 44 offers on a property in Maryville. “I almost lost my mind,” she says. “I mean it was a lot. I had 86 showings on that property in a weekend, which is 172 text messages just for showing appointments, not to mention the texts from agents asking on offers.” The property listed at $235,000; it sold $85,000 over listing price for cash. “They waived the inspection, and they waived the appraisal. And it was not my highest price offer, but it was the best terms for the seller.” The house was on the market for four days.
Yes, you heard correctly. Four days. Something not atypical of the housing market right now. Very recently, a good friend of mine sold his home “as is” in three days, well above the asking price. No inspection, no repairs. Within days of the sale, they purchased a home in Florida—and a new truck. He hadn’t even planned to put the house on the market.
To say the last year and a half has been one we will never forget would be an understatement. We scoured the grocery store shelves for toilet paper, stockpiled drinking water, hand sanitizer and face masks, filled any available portable receptacle with gasoline, and among much other craziness, prayed hard. Amidst all of this, we wondered if the stock market would plummet and whether we would be faced with the greatest depression of our time if none of us could work. There was so much uncertainty.
Many businesses failed due to the chaos of the year. However, certain industries flourished to our astonishment. Such is true of the real estate industry. Mortgage rates were at historic lows while home prices reached historic highs, conditions which created an almost “perfect storm” scenario. But with it came a housing market devoid of inventory, and while sellers were reaping the benefits of inflated listings, buyers were seeing themselves in a home-buying process unlike the norm. Let’s take a look at these stormy conditions, and glance at the plausible forecast for what’s ahead.
More Buyers Than Homes
Many areas of life shifted during the pandemic, but none more than where people spent the majority of their time. COVID-19 drove a transformation from office work and in-school learning to virtual employment and web-based classrooms. Everyone knows at least someone who stopped commuting to an office in a major city. With no need for expensive homes in expensive cities—and in some cases with more disposable income due to lack of eating out and so much time at home—families fled tight spaces and high prices for more space, a higher quality of life, and a lower cost of living.
Couple this with the 72 million millennials across the US now ready to settle down and purchase their first home, and you have yourself an unprecedented number of motivated buyers. It’s the simple law of supply and demand. The East Tennessee real estate market became a busy one.
“One thing driving our market—well, a piece of it—is the people moving here from bigger cities,” says Lucas Haun, a broker with Keller Williams Signature. A real estate broker of more than 16 years in the Knoxville market, Haun believes people have been fleeing their cities due to undesirable political climates and violence, along with the ability to work remotely. Knoxville also carries with it the opportunity to gain the biggest bang for your buck.
“We have always been so affordable and everyone knows that but us, so I think that secret has gotten out,” Slyman says. “Our property taxes are so low, we have no income tax, it’s an easy place to live, our school ratings are high, our crime rate is low.”
Tennessee ranks 36 in the country for property taxes, according to Census data synthesized by the Tax Foundation. To compare, New Jersey’s average property tax (paid as a percentage of owner-occupied housing value) is 2.1 percent; Tennessee’s is .63 percent. That’s quite a leap when you consider what you can do with those extra dollars.
Slyman worked with a Virginia-based client recently whose taxes on their vehicles were 10 times more than what a Knoxville resident might pay on their home. “I honestly don’t know how people make it compared to what you could do here for the money…So if they come here and supposedly overpay by $50,000, what does that really matter to them? They’ve gained so much in the move.”
A Different Kind of Transaction
According to a migration trend study by U-Haul, Tennessee ranked No. 1 in inbound one-way moves in 2020. Over his last 16 years, Haun says, he’s seen a “well insulated” market here in Knoxville. With manufacturing facilities, hospitals, the university, government agencies and large corporations forming a stable job market, there hasn’t been any “massive market swings” in terms of real estate. “The last couple of years,” Haun says, “have been different.”
What concerns Haun, however, is the movement toward a new and different—but not necessarily better—kind of real estate transaction, the most interesting of which is purchasing a home “sight unseen”. According to research by Redfin, a national real estate firm, 63 percent of people who bought a home in 2020 made an offer on a property without ever having seen it in person. “In hot markets like ours, buyers feel compelled to make offers in minutes or hours, not days,” Haun says. “Buyers are looking to avoid expensive travel and bidding wars.”
Real estate agents, like Slyman and Haun, work with many out-of-state clients to purchase Tennessee homes, but the way it has played out has been different. “In the past, if I had worked with you for a weekend and I had looked at 22 houses with you, I’ve got a pretty good indication of what you’re looking for,” Slyman says. “Right now, I may have never met you, and I’m showing you through my phone what the house looks like.” And while some buyers are using the inspection period as additional time to fly in and see the home, half of the time, Slyman says, they aren’t even looking. “They’re just making an offer, and that’s where they’re going to live.”
But it’s a worrisome idea to the real estate agents working with them. “While coming to the table with a legitimate offer in a timely fashion is certainly the ideal,” Haun says, “there are a number of potentially undesirable outcomes for both seller and buyer in a remote buying transaction.”
For starters, nothing takes the place of a personal visit to the property and a professionally executed home inspection. When these are set aside for the sake of expediency, and the pressure of multiple offers is added into the mix, things can go wrong. Offers can fall through causing a loss in crucial time on the market. Defects in the home that require expensive repair can be discovered later. Earnest money can be lost. In short, remote buying can be risky business.
Historically low interest rates
For those ready to buy, they’ve lucked out because 2021 started off just as 2020 ended: with record low mortgage rates. And quite simply, the lower interest rates go, the lower the cost to obtain a mortgage. This makes it easier to buy a home which then creates a higher demand for real estate, which again pushes prices up. So, is it really “easier” to buy a home when rates are low? In theory, yes.
As the US economy works to get back on its feet, rates are expected to stay low, although with the specter of rising inflation on the horizon, experts do see a potential rise in rates. Even with a slight rise toward the latter part of 2021, however, experts believe that they will certainly remain favorable compared to historical averages. With 30-year fixed rates dipping below 2.7 percent in 2020, even a steep increase of 1 percent would leave rates well short of the 5 to 6 percent average rates we saw just 15 years ago.
Sandra Parsons, Branch Manager at Bank of England Mortgage of Knoxville, agrees. “I think buyers will continue to enjoy low rates well into next year,” she says, “although the low rates aren’t really helping those seeking to buy a home here in the Knoxville area. They’re coming to this market in droves from all over the country…cash in hand, ready to buy just about anything. I’m fielding four or so calls each day from individuals out of state who are interested in moving here.”
With so many people ready to purchase, the result is that buyers are spending an inordinate amount of time and energy on searching for and making fast offers on homes. Parsons says that she’s seen “up to 17 lost offers with some of her customers, and they’re having to give up a lot of their due diligence such as home inspection, in order to win a bidding war.” First time home buyers, she says, have it particularly tough. “These buyers simply don’t have a chance when making an offer, especially when offers are coming in at $20,000 or more above appraised price. We’re looking at very high over-market value purchase price.”
For some of these new buyers, they are resorting to seeking help from family members to simply support them in this fast-paced market. Slyman says she’s seeing more and more parents of buyers stepping in to help. “They’re using their equity lines to pay cash for properties because for their kids there’s no way they can get a loan and be accepted on an offer. If a seller has 10 offers to choose from, they choose the one with the least amount of risk,” she says. “That’s usually the cash offer where there’s no appraisal.”
On the horizon
So what’s to come over the next year for this perplexing market? Data from the Knoxville Area Association of Realtors shows the gap in supply and demand is narrowing, but it’s still present. It can be seen across the country. According to the latest data released by the National Association of Realtors, existing-home sales declined for the third straight month in April; not due to lack of interest in purchasing a new home but the continuing rise in prices and the continued dwindling of inventory. Demand is still strong, however, with sales up 20 percent from the same period (January to April) a year ago.
Haun believes what we are beginning to see is buyer fatigue. “Normal buyers…are having a really hard time trying to buy something because they’re having to pay big dollars to get into a house that really shouldn’t be that expensive,” he says. “ I think people are getting exhausted with that and because of it, I think people are just staying put, not always, but sometimes. I can see that starting to happen.”
So, is now a great time to buy a home in the Knoxville area? Of course, it is. If you can find one for sale. All I can say is this: you better jump on it fast.