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Is The Knoxville, Tennessee Market Going To Crash?

Eric Whitener

Eric is the drummer of our band...

Eric is the drummer of our band...

Aug 22 5 minutes read

Is the Knoxville, Tennessee real estate market going to crash? In this video, I’m going to give you some insight into what’s really going on with the local real estate market. We’ll look at the differences between the current and past markets so you can best plan for your future.

If you've been watching the news lately, you've been hearing a lot of stuff about inflation, rising interest rates, and affordability issues. This gives people a lot of concern that we might be heading into a housing market crash. The housing market crash of 2008 was unprecedented, and it impacted a lot of people. This means there's a lot of reason for concern.

Even though today's housing market may feel like the run-up to 2008, there are some major differences. I'm going to lay it all out and give you my opinion on where we’re headed.

Mortgages And Lending Standards

The first major difference from today to 2008 is mortgages. Today's lending standards are way tighter than they were in the early 2000s. If you've applied for a mortgage in the last several years, you know that to get a mortgage, you have to be highly qualified.

You have to have a good credit score and a good debt-to-income ratio. You also have to verify everything with documentation—which is way different than in the early 2000s. That means today's homeowner is much less likely to default on their loan.

Foreclosures

When homeowners are less likely to default, they're less likely to go into foreclosure. We've all been waiting for that wave of foreclosures that were supposed to happen after the pandemic hit. However, that never really came about.

Now, we're hearing about this massive increase in foreclosures—such as one article talking about a 150% increase in foreclosures year over year. The truth of the matter is we're still below pre-pandemic levels of foreclosures. In our area, we hardly had any foreclosures on the market.

Increased Equity

One of the reasons why foreclosures are so low is because homeowners today have a ton of equity. We've literally had a double-digit appreciation for the last several years. If a homeowner was to have a financial hardship and find themselves in a position where they couldn't make their mortgage payment, they could sell their house.

This would allow them to actually walk away from the closing table with a bundle of cash instead of walking away from their house. It’s very different than post-2008. Back then, many homeowners found themselves in a position where their home was worth less than what they owed. In those circumstances, people just gave their homes back to the bank.

Inflation And Recessions

Another consideration is inflation, a scary word that impacts just about every part of our life. The truth of the matter is that real estate is an asset that historically appreciates during times of inflation. With that being the case, you want to own real estate in a time of high inflation.

We also have the recession—which may or may not be happening. But even if we're in a recession or going into a recession, homes still historically appreciate during a recession. As a matter of fact, in four out of the last six recessions, home prices appreciated.

The only one of those times that homes did not appreciate was the 2008 market crash. This makes sense because housing was the reason we had the recession.

Supply And Demand

The biggest thing you want to look at when trying to figure out the housing market is supply and demand. Supply is our inventory of homes on the market, and inventory is definitely increasing even in our area year over year. We have 33% more homes on the market than we did, though we’re still 33% lower than we were before the pandemic.

When considering what it takes to have a market crash, let's look at 2008. We're actually 73% below the inventory levels of 2008. It's really hard to have a market crash when you have little inventory on the market. On the demand side of that equation, demand is still high.

This is especially true here in East Tennessee, with our mountains, lakes, moderate climate, low taxes, and overall affordability. People are looking to move here from all over the country, keeping the demand for housing very high in our area.

The Future Of The Market

The bottom line is the Federal Reserve is trying to slow down the housing market to help fight inflation, slowing home price appreciation to a more healthy level. The fact of the matter is we're far from a housing crash, based on supply and demand and how healthy our current real estate market is.

If you have any questions or want to know more about the Knoxville area, feel free to reach out and I’ll be happy to connect. Don’t forget to subscribe to the channel so you never miss an episode of my show, all about East Tennessee and the local housing market. Stay tuned to see what I feature next!

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