Chattanooga: Down payment required

Dec 07, 2008 (Chattanooga Times/Free Press - McClatchy-Tribune Information Services via COMTEX) -- DOWB | Quote | Chart | News | PowerRating -- With higher credit standards and lower home sales this year, veteran Realtors are feeling a sense of deja vu about Chattanooga's real estate market.

"We're back to where we were 10 to 12 years ago," said Alison Hamilton, managing partner of Coldwell Banker Hamilton & Associates in Cleveland and Hixson. "The industry grew to an inflated size which will not be sustainable for years to come."

Ms. Hamilton and other real estate professionals who recently participated in a Chattanooga Times Free Press forum said the local market already is readjusting to an era more like the 1990s than the housing heyday they enjoyed in the middle of the current decade.

"When I got in this business in 1999, you had to have money to put down to buy a house and we've kind of got back to that principle again," said Jason Farmer, broker/owner of ReMax Renaissance Realtors.

The changed environment and faltering economy have combined to trim Chattanooga home sales by more than 24 percent and cut Hamilton County home starts by nearly 51 percent this year compared with last. Home values, which had been appreciating at twice the rate of inflation early in the decade, have stagnated or even dropped in some neighborhoods of Chattanooga.

Nonetheless, Chattanooga's housing market is faring far better than most. Chattanooga's market is benefiting from a more stable economy and market than in most cities, according to area Realtors, home builders and mortgage lenders.

Real estate leaders expect the construction in the next two years of a $1 billion Volkswagen assembly plant, a $2.5 billion reactor at the Watts Bar Nuclear Plant and a $280 million expansion by Alstom Power will bring more homebuyers to the market and cushion the expected economic decline in 2009.

Linwood Sullivan, a senior buyer for VW in Chattanooga, is among Chattanooga's new residents looking to buy a home.

"Chattanooga is a great town, and we look forward to buying here," said Mr. Sullivan, a former manager for Mercedes Benz and Hyundai in Alabama who recently relocated to Chattanooga. He has to sell his current home in Auburn, Ala.

In Chattanooga, the Sullivans will find a market where the median home price is valued nearly 34 percent below the U.S. average even though local prices have not dropped this year as much as in most cities.

According to the National Association of Realtors, the median home price in Chattanooga dropped by 0.4 percent during the past year -- the lowest of any Midsouth metro area and far below the nationwide 9 percent price drop in the past year.

"Our sellers are standing on their value," said Linda Brock, an agent with Prudential Realty Center. "You can buy a house today and know that it will be worth as much or more in a year."

Chattanooga still has a rich inventory of unsold houses, but the absorption rate has improved through this year. In Chattanooga, the inventory volume dropped from a 14.9-month supply in January to a 10.3-month supply in October, Mr. Farmer said. In Cleveland, Tenn., Ms. Hamilton said inventory levels dropped from a 12.5-month supply in the second quarter to just over a 10-month supply today.

"Builders are simply not starting as many new homes," Mr. Farmer said.

Even with the decline, however, inventory levels remain well above the normal six-month supply.

"It might sound funny for a real estate person to say this, but I tell my agents ... if somebody doesn't have to sell their house right now, tell them not to, until we get control of the inventory," Ms. Hamilton said.

HIGHER LOAN STANDARDS

Lenders have tightened their loan requirements over the past year, forcing homebuyers to have bigger down payments and, in some instances, higher incomes to qualify for certain homes.

"Everybody has tightened up on their standards," said Bobby Allison of American Home Mortgage. "But I think that is something that needed to happen and hopefully we're getting back to normal."

The new "normal" is likely to mean higher credit scores and down payment requirements, which could squeeze out some potential homebuyers, officials said. The slowing economy and rising unemployment also are making many Chattanoogans more cautious about buying a home.

"As the economy continues to adjust, buyers and sellers are taking a 'wait and see' approach," Pam Duffy, president of the Chattanooga Association of Realtors, said in releasing the latest home sales figures. "People are trying to time the market but it's really an impossible notion. You can no more time the real estate market than you can time the stock market."

Those who are able to buy should get a better deal than they may have in recent years. Mortgage rates last week dropped to the lowest level in three years and could fall further if the U.S. Treasury goes ahead with a tentative plan to buy down rates for mortgages bought by Fannie Mae and Freddie Mac.

Local Realtors insist the depressed market has created a great buying opportunity.

"If you buy a home right now, you are buying something on sale that is truly going to increase in value," said Ival Goldstein, a local developer and real estate agent. "Now is a great time to buy a home."

Housing experts gathered recently for a meeting with Times Free Press reporters to discuss the local and national economic effects on the Chattanooga area housing market.

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