2023 Forecast Report
East Tennessee’s housing market experienced extraordinary growth over the past two years, culminating in booming home sales and home prices growing at the fastest pace on record. Much of that growth can be attributed to a substantial supply-demand imbalance and fundamental market forces, such as favorable demographic trends, migration and, changing household composition. Other trends, such as pandemic-induced migration, fiscal stimulus, and ultra-low borrowing costs, were unique to the pandemic era, and their impact already is waning.
With mortgage rates at the highest level in more than a decade and widespread concerns about inflation, the pandemic-induced housing frenzy has come to its inevitable end. As a result, East Tennessee’s housing market is expected to recede in 2023, while retaining most of the gains accrued over the past two years.
- Home price growth is decelerating but remains above the historic average. Home prices in the Knoxville, Tennessee, metropolitan area rose 18.3% from the previous year in Q3 2022, according to the Federal Housing Finance Agency House Price Index (FHFA HPI).
- Rent growth remains high, although rent increases have moderated in recent weeks. Rents in the Knoxville, Tennessee, metropolitan area were up 19.6% from the previous year in Q3 2022 outpacing the rent growth of 10.5% nationally.
- After a record-breaking year, home sales are expected to decline 10% year-over-year in 2022. The deceleration in home sales is likely to continue next year, with home sales forecasted to decline between 10% and 12% in 2023.
- Despite the expected decline in home sales due to deteriorating affordability conditions, a lack of inventory continues to place upward pressure on prices, with home prices forecasted to increase between 3% and 5% in 2023.
- Knoxville’s rental market is poised to experience moderate growth in 2023, with rents forecasted to grow around 4% next year.
- After reaching an all-time high of 98.86% in Q4 2021, the rental occupancy rate is forecasted to decline to an average of 96.5% in 2023.