Housing prices and inventory expected to stay steady as sales subside
The Knoxville Area Association of REALTORS® (KAAR) has released its 2023 State of Housing Report, an annual analysis of the local housing and real estate market and its outlook for the upcoming year that takes into account the waning effects of the pandemic and persistent impact of high interest rates.
“Our market is continuing to cool from the intense activity of recent years,” said Hancen Sale, KAAR’s government affairs and policy director. “The triple threat of high home prices, rising mortgage rates and low inventory have weighed heavily on demand, pushing housing affordability to its lowest levels since at least the 1980s. Better understanding the challenges ahead of us will help buyer and sellers, policymakers and community leaders make well-informed decisions moving forward.”
The report forecasts that the Knoxville-area housing market will recede in 2023, while retaining most of the gains accrued over the past two years. Notably, home prices are expected to remain higher than the historic average, growing 3-5% in 2023. However, deteriorating affordability conditions indicate home sales will subside, decreasing by a projected 10-12% from the previous year.
According to the report, the rental market will experience moderate growth in the coming year, with rents forecasted to increase by about 4%. Occupancy is expected to decline to an average of 96.5% in 2023, down from the record high of 98.86% registered in the fourth quarter of 2021.
Population trends are projected to influence housing demand. First-time homebuyers, aging individuals and those from underrepresented and disadvantaged backgrounds are experiencing a shortage of housing options that are affordable and make sense for their lifestyles. Currently, the supply of entry-level homes is severely constrained, 70% of the region’s housing stock is considered cost-prohibited for seniors on a fixed income, and homeownership among Black and Hispanic/Latino households is more than 30% lower than that of white families.
“Housing is the backbone of our region’s economy and key to achieving economic mobility and prosperity for so many families in our area,” Sale said. “Our region’s natural beauty and vibrancy are why so many choose to call East Tennessee home. Now, our challenge is to address the rising cost of housing within our market to make living, working and enjoying our region more attainable.”