KNOXVILLE, Tenn. — The cost of renting in Knoxville grew faster in April 2023 than in most other areas across the U.S., according to a report from the Knoxville Area Association of Realtors.
They said apartment rents were up by 10.7% in April 2023 compared to the previous year. Nationally, rent rose by around 3.2%. Home prices also increased 6.1% in Knoxville during the first quarter of 2023, compared to 4.3% nationally.
While the price of owning a home increased during the first part of the year, KAAR said the median price was unchanged in April compared to March, staying at $325,000. They also said the median price-per-square-foot increased, indicating that although the median price may not have changed, the size of homes sold may have slightly changed.
The report also noticed that structural trends could attribute to an affordability crisis. They said a third of all Knox County households are made up of a single person, but only a fifth of all housing options are studio or one-bedroom units.
"As a result, households with just one or two people must spend more on a relatively large home, not because they want the extra space but because smaller, more affordable options are simply harder to find," the report said.
They also said that around two-thirds of all homes are made up of two or fewer people, but nearly two-thirds of housing options in the area have three or more bedrooms. The report insisted more smaller homes be built, but said doing so could be expensive for developers.
"In addition to rising material and labor costs, government-imposed zoning and land use regulations oftentimes make building smaller homes prohibitively expensive, if not illegal altogether," the report said. "For example, many jurisdictions regulate the minimum lot size per housing unit or maximum floorspace-to-lot-size ratio for new residential development. These regulations are often supported by existing homeowners and residents as a means to 'maintain the character' of the neighborhood. In practice, however, such regulations exclude lower-income households who could only afford homes that are smaller than what is allowed."
They said as of April, new listings were down by more than 20% from last year and said they expected the trend is likely to persist into the summer while also keeping the number of home sales relatively low. It said home sales were at their lowest level since Nov. 2022.
The report said active listings as of the end of May are up around 45% from the previous year. However, they are also still well below pre-pandemic levels.
KAAR also said that the spring selling season is slower this year since fewer people are choosing to list their homes for sale, which in turn keeps inventory relatively low and competition high.
"Until affordability conditions improve (i.e. until mortgage rates fall), home sales are likely to stay fairly sluggish," the report said.
They said more than 80% of homeowners with a mortgage in Tennessee are locked in with an interest rate below 5% — far below current rates. The difference can mean a difference of at least $300 in monthly mortgage payments for the same home. As a result, people are either reluctant to sell their homes or are incentivized to turn their current homes into rental properties.
"New listings have been down more than 20% year-over-year throughout the early months of 2023, defying the typical seasonal trend of increased new listings during the spring. As of writing, there are few indications new listings – and thus available inventory – will rise significantly in the near future," the report said.