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February 22, 2017

Inventory Shortage Drives Prices To Record Highs

By Mark Hite

President, Greater Chattanooga Association of REALTORS®

The relative shortage of available residential homes for sale has driven home prices to record highs in the Greater Chattanooga region. 

As was reported in this space last week, the average home sold for $202,894 in January of 2017, which is an all-time record high. This price represented an 11.2% increase over January 2016 and was a sharp contrast to December 2016 when the average price of a home closed at $189,067.

To give perspective to the amount of change in home prices over the last few years, one should go back to when the Great Recession dropped the average home price to $154,065 in 2010. The rebounding of home prices began in 2011 with a modest increase of 1.5% and 2012 saw the average price up to $164,967 a 5.5% increase. The average price grew to $168,753 in 2013 and then to $177,555 in 2014. The year of 2015 saw the average price grow 8.4% and hit $182,149 and then 2016 another 6.5% to close out the yearly average price at $193,752.

The magnitude of the change can best be gauged when one compares this January high price of $202,894 to the low point of $154,065 in 2010. This increase represents a 31.7% increase in the average price of a home sold in the region. Wage growth during this period has not matched this increase, so at some point in the future, affordability will become a negative influence on home sales.

The rise in home prices is the direct result of 5 years of increasing sales and consistently declining inventory of homes available for sale. Again, the contrast is sharp if one compares 2010 to January 2017. There was a total of 6,214 homes available for sale in 2010, compared to 3,072 available in 2017, a 50% decrease in available inventory.

While all of this information is music to the ears of home owners, the question looms, how long can this trend continue? If you are considering selling a property in the next few years, NOW is the time to contact a REALTOR®. Take advantage of these record prices while interest rates are still relatively low and buyer confidence/demand remains strong.