Recently the Chattanooga Times Free Press published a letter to the editor from me. The intent of the letter was to give some emphasis to the good aspects of this real estate market. There certainly is plenty of bad news. More lenders are closing or reducing their product line or ceasing to accept broker loan applications.
The headlines about major lenders are generally focused on the unimaginable amount of losses - in the billions of dollars.
Several people who read the letter thanked me for pointing out the positive about our local market. And in Chattanooga we recently saw that home prices had increased some in March from the previous year, even though sales volume was down. I have not seen more recent figures.
And recently I saw an article that Nashville, TN has similar figures for April. These seem to me to be positive, though not yet trends.
There is much that is good about purchase options for the many qualified buyers. And there are many good options for those buyers who need help to become qualified to purchase.
Another point I made in the letter to the editor was that some of the recent decrease in sales and refinance volume is due to the normal market fluctuation that would be expected to follow a couple of historic boom years. People who have just purchased or refinanced will probably not do so again in the next couple years.
One person active in the industry locally called me to challenge the positive points I made in the letter. He specifically mentioned high inventory and a report that indicated home prices had declined in the area. He mentioned another point about construction costs that will also contribute to the high inventory.
Construction material costs have declined significantly. This means that builders paid more for materials for homes build in the previous year than for homes now under construction. Many builders with existing inventory may not be able to sell that inventory because of the previously higher construction costs.
Builders nationally have been encouraged to cut back.
Locally in Chattanooga, there are many foreclosures adding to the home inventory, but I do not think home prices are plummeting in the Chattanooga market for non stressed properties. Some areas have had some drops in the average prices, but so many of these figures may be skewed by foreclosed properties in bad repair.
I did a search of properties owned by one bank that had caught my attention because of the frequency they showed as the owner of property being sold in the area. That bank has over 70 foreclosures in the Chattanooga area.
These contribute to high inventory which gives downward pressure to home prices.
The person who called to argue that my positive comments are wrong also pointed out that several areas have large concentrations of homes for sale.
Combined with reduced loan programs and a reduced number of qualified buyers, there are certainly many negative aspects of the local and national real estate market.
It is still a good time though to buy. Rates remain low for qualified buyers. A big concern for me is that the low short term interest rates, with increasing gas and food costs, will cause a significant increase in the inflation rate. This may cause mortgage rates to trend upward. And I think that would be the final factor in forcing a significant decline in home prices across the nation.
