East Tennessee’s booming real estate market is attracting out-of-town homebuyers.
That added competition for homes, combined with low inventory and an increase in home prices, is making it more difficult and expensive to buy a house in the Knoxville area.
According to the Freddie Mac Housing Price Index, Knoxville’s May home prices increased by 21.4% since May 2020 – a higher rate of increase than Chattanooga, Nashville, Tennessee and the United States.
While it’s true that many new Knoxvillians are coming from outside the city and state, real estate experts say what makes the market challenging isn’t out-of-town buyers — it’s a lack of available homes and other problems causing prices to go up.
And despite some community fears, the trend is unlikely to fundamentally change Knoxville.
“It feels like all the houses that are available are going to people who don’t love the city like the people who live here do. That’s what makes me really frustrated,” Cana Johnson, a recent homebuyer, told Knox News. “What is Knoxville going to look like if it’s not loved by people who move here?”
Out-of-town buyers often have upper hand
Out-of-state buyers often do have the upper hand when it comes to bidding on a home.
According to the Knoxville Area Association of Realtors’ (KAAR) analysis of U.S. Census Bureau data, the share of all homebuyers who were moving from a different state has increased in the last five years.
As of 2019, out-of-state homebuyers made up 17.7% of all homebuyers in the Knoxville metro area market.
These out-of-state buyers, typically in their 50s, often have more money to spend. The median household income of out-of-state buyers in 2019 was $92,610; For Knox County buyers it was $57,470, according to the Census Bureau data.
Out-of-state buyers purchased property at a median price of $245,947 in 2019. Meanwhile, the median value of owner-occupied homes from 2015 to 2019 was $183,200.
Knoxville home prices were climbing before the pandemic, but COVID-19 exacerbated the issue. Building materials are more expensive and often on back order, the construction industry has a labor shortage, and Knoxville doesn’t have enough homes for the record-high demand.
According to KAAR, on average the homes sold in May in its 12-county area were under contract in 3 days or less.
“I’m glad that these people are coming here. That’s fantastic for the economy, and it benefits businesses,” said Donna Taylor, an affiliate broker with Slyman Real Estate. “But we just don’t have a place for all these people to live.”
Why it seems like out-of-state buyers are everywhere
The local market has a long way to go before demand slows down.
Hancen Sale, governmental affairs and policy director for KAAR, said the booming business could give buyers the wrong idea about the realities of real estate.
“Yes, there are more out-of-state buyers and more bidding wars than normal, but also they probably feel much more prevalent than they actually are because there’s a smaller number of houses on the market,” Sale said. “You’re more likely to actually encounter an out-of-state buyer or a situation where there are multiple people bidding on a house, but that’s not everyone’s experience and won’t happen forever.”
There is hope the housing market will stabilize. For the first time in 2021, inventory has increased. But it’s still down 47% from a year ago and there are only enough homes to last half a month at the current sales pace.
“We are at a turning point in the industry. We need to decide what we’re going to be five years, 10 years down the road and make the market adjustments now to get there,” Taylor said. “Otherwise, affordability, availability and our identity is on the line.”
‘We don’t want to be Nashville’
The median home sales price in Knoxville is skyrocketing. According to KAAR, the average cost was $265,000 in May — up 10.6% so far this year and an increase of 23.3% from May 2020.
“I feel like Knoxville is this hidden gem people are discovering,” she said. “They’re realizing it’s this great little city that’s affordable and has jobs and we all take pride in our town. I don’t mind to share my city, and I think it’s a great place to live. What bothers me is that the people that love this town are having to leave because they can’t afford it. It does kind of feel like you’re being infringed on.”
Knoxville has been named on countless “best” lists through the years. Is all this growth and attention going to turn Knoxville into Nashville?
John Cook, president and CEO of Cook Bros. Homes and current president of the Home Builders Association of Greater Knoxville, said while challenges like inventory and supply delay are affecting home costs, he’s hopeful that the market will correct itself over time.
“I don’t see us becoming another Nashville. I think we’re going to continue to grow, but I don’t think we’re going to get to that point because we don’t want to be Nashville,” Cook said.
Knoxville and Nashville are drastically different from a development perspective, which makes it even less likely that the two could become synonymous. Knoxville has a more challenging topography to develop, lacks the infrastructure to handle a large population and has less housing supply than Nashville.
Despite the increase in home prices here, buying in Knoxville is still far less expensive.
The median sales price of a home in the Greater Nashville Realtors’ nine-county region was $415,000 in June, 25.2% higher than the average cost in June 2020. Davidson County has an estimated population of 694,144, while Knox County’s approximate population is 470,313 people.
“There’s a couple of key pieces of what Nashville is that we don’t have, and I’m not sure we could even recreate,” Cook said. “Frankly, I’m not sure that anyone here wants to recreate it.”