The Knoxville housing market remains hot as buyers snap up homes within days and for a price above asking.

Knoxville ranked 13th out of the top 100 metro areas for house price growth during the second quarter of 2022. Prices rose 4.9% from the previous quarter and 25.6% from the previous year, according to House price index from the Federal Housing Finance Agency.

The average sale price in the Knoxville area in July was $324,500, up more than 14% from July 2021, according to the August Market Pulse report from the Knoxville Area Association of Realtors.

Despite the year-over-year increases, prices are down slightly from this summer’s peak. Realtor.com reported a drop of $9,000 from June to August.

Home sales are down. They fell 10.1% from June to July, according to KAAR.

With the housing market more expensive and housing supply more limited than it was before the pandemic, KAAR’s Director of Government Affairs and Policy Hancen Sale told Knox News that ‘it stabilizes for a post-pandemic world. This Q&A has been edited for length and clarity.

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How would you describe the housing market in the Knoxville area right now?

Hancen Sale, Director of Government Affairs and Policy, Knoxville Area Association of Realtors, 40 under 40 Class of 2021. Photographed in Knoxville, Tennessee on Wednesday October 27, 2021.

Higher interest rates and higher house prices have had quite a big impact on affordability. And that forced the market to correct and start moderating, and that’s not surprising. It was something we expected to see.

I think we will continue to see this throughout the year, but stocks are still well below pre-pandemic levels. Things should therefore remain fairly stable.

House prices are still higher than before the pandemic, but have seen some decline. Should buyers buy now or wait for prices to drop further?

We are not likely in Knoxville and East Tennessee to see house prices drop substantially. When we talk about price drops and month-over-month median selling prices, you really don’t want to read too much.

When you see a drop in price, it doesn’t necessarily mean that your home is losing value. It’s just that the trend hasn’t continued and is starting to level off.

I don’t think the market and the situation we face is going to change significantly anytime soon, especially with the lack of housing we have relative to demand.

At the same time, higher interest rates have an impact, but it is important to note that interest rates are lower than the rate of inflation. So it’s actually a surprisingly good time to take out a mortgage when inflation is much higher than the real effective mortgage rate.

Inventory is up and there are more homes on the market. What does this mean for buyers and sellers?

This is part of what moderates this market. There are more options, homes are getting fewer offers per listing, and that’s a good thing. We were seeing a large number of bids on each listing, and we were seeing bidding wars, and it’s becoming less common.

It is therefore certainly still a seller’s market in the traditional sense of the term. Sellers still have the upper hand, but buyers have clawed back good leverage in what was truly an ultra-short market and something that was unhealthy.

So it’s a good thing for home buyers and, really, for the stability of our market. The balance between supply and demand was far too great and created a situation where prices were appreciating rapidly in a way that was not sustainable.

But that being said, 40% of homes in July sold above asking price. So it’s still a highly competitive market as inventory is up 50% from a year ago, but it’s still significantly lower than it was pre-pandemic. The inventory is even more significantly lower than it was five years ago.

Why do homes still sell within days, but don’t exceed asking price as often?

I think it’s the buyers who are starting to realize that they carry more weight in many circumstances. We used to live in a time when it was reasonable to expect there to be 10 offers on a house and you had to make a fairly competitive offer, which was often above the asking price and without contingencies.

Buyers have realized that’s not really the situation we were in anymore, and we’re starting to see that calm down.

I will say that with higher rates I think we’re also seeing some of these smaller investors – not necessarily institutional investors, but people who are just buying investment properties – starting to pull out of the market with the rise in rates . So it just created a healthier balance between buyer and seller. And that’s ultimately a good thing.

Knox County is one of the largest counties in the state, but does not build as many new homes per 10,000 residents as Davidson, Rutherford, Williamson, and Hamilton. What does this mean for us?

It is a very important trend. Over the past 20 years, Knox County, per capita, has produced housing at a slower rate than many of its peers. This has paved the way for the rapid price growth we have seen, and in particular the fact that we are ahead of many of our peer cities.

It has a lot to do with the type of housing or the number of single family units we allow, but a lot of it is due to the lack of multi-family units. The county made particularly poor employment allowing multi-family housing such as duplexes and triplexes, apartment buildings and townhouses.

What are the obstacles to building more apartments?

Our zoning code does not allow development that is not single family detached. Most places do not allow the construction of multi-family dwellings.

There is no way to stop the growth. The only way to stop growth is to make your community junk, and that’s not something everyone wants to do.

We need to look at our zoning and our development policies and think about how we can cluster housing and build different types of housing – multifamily, single family, townhouses and everything in between – to fill a void. Because we don’t have that right now.

Is there a change in the pace of housing construction?

We started to see a little more house building in general in recent years. We saw a lot more authorized accommodation. The increase was not very significant, but it is something.

We’ve seen a lot of multi-family development, especially in the town of Knoxville and especially downtown, but we still saw a lack of multifamily in the unincorporated parts of the county, in the town of Farragut.

We are still largely under-producing multi-family housing and we are short of intermediate-type housing.

Looking ahead, what will the residential real estate market look like for the rest of 2022?

This home at 4636 Beaver Ridge Road is listed at $475,000 as of Friday, July 8, 2022.

I think we will see continued moderation. We’ll see more of a balance between buyers and sellers, but there’s really no reason to believe that we’re going to feel shock, that there will be a month where things change quickly. It will be stable.

And I think that’s what a lot of people don’t understand is that there are very few instances in history where house prices have actually just fallen, or that nominal house prices have gone down. They just grew slower. I think that’s really what we’re going to see, especially as Knoxville continues to attract new investment and new residents and there are a number of various amenities to come.

Do you have anything else to add on the housing market?

In 2020, homebuyers between the ages of 25 and 34 were the fastest growing segment of the housing market. They were applying for mortgages at a higher rate than any other age group. And you saw that really reverse in 2021 when we started to see rates go up, and we started to see house prices go up gradually.

It is therefore very important to think about the impact of this market on young home buyers, and in particular because Knoxville is working on attracting and retaining more young professionals to keep UT graduates in Knoxville and to attract graduates from other cities to Knoxville. We haven’t seen the proper growth of this younger demographic.

What we’re seeing in the data is that young homebuyers were really struggling to keep up in 2021. Young buyers are a demographic that traditionally don’t have the same financial resources as homebuyers older who can offer money. They do not have the financial resources to waive a number of contingencies and offer favorable contract terms.

So it’s interesting to see that reflected in the data. It’s not just an anecdote, but it really has had a disproportionate impact on younger generations of homebuyers. And these are precisely the people who worked so hard to keep and attract to Knoxville. So I think that’s a very big impact of the last year and a half.