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3 things to know about rising interest rates, volatile Tennessee housing market

A Knox County mortgage lender said interest rates have doubled since January, but home affordability could be on the horizon.

KNOX COUNTY, Tenn. — Higher interest rates are making it harder for people to buy homes or refinance their existing ones but the higher rates have some redeeming impacts on the Tennessee housing market and your wallet.

Interest rates rose from slightly over 2% to more than 5% since January 2022, according to mortgage lender Nick Galbraith.

Galbraith said the rising rates will have three major impacts on the community, their wallets and people looking to buy or sell their homes.

Reduction of buying power

Galbraith said the increasing interest rate makes mortgage payments higher for people trying to buy home.

“Let's say if you were looking to buy a house and you got pre-qualified in early January,” he said. “The monthly payment that you would have now compared to then has increased by 32%.”

Slower inflation

The federal reserve raises the interest rate to combat inflation.

“I think everybody can recognize inflation at this point, when you go to buy something, you get gas, you check out the grocery store,” Galbraith said. “Everything is a lot more expensive than it was just a few months ago.”

Glabraith added if financing is more expensive it will discourage buying, which should in turn slow down inflation.

Slow home price appreciation

If inflation does eventually slow down, Glabraith said that should slow down home appreciation, which is good for people looking to buy their first homes.

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“There's too many buyers right now and not enough sellers,” he said. “So by raising interest rates, you are eliminating the number of buyers in the market and that will then create an equilibrium between buyers and sellers, and prices will have a tendency to stabilize.”

Galbraith said a sharp increase in interest is usually followed by a sharp decrease, making affordable homes in East Tennessee a possible reality in the near future.

“Prices are going to continue to rise, but they're not going to rise at as quick of pace as they have over the last year, which is really a good thing,” he added.

Galbraith also predicts more growth outside Knox County.

“If someone is looking in West Knoxville, or one of these hotter areas of the market, and they can't find anything, I think they're gonna drive down I-75 or I-40,” Galbraith said. “They're gonna go into Monroe County, Athens, Sweetwater, Jefferson County, Dandridge and Clinton.”

He predicts home values in those areas will appreciate from the demand from out-of-state homebuyers coming in from bigger cities.

“With a lot of people moving here from a bigger city, where commuting was something they did in daily life, it's not too bad of a commute to go from here to Dandridge,” Galbraith said.

If you are immediately desperate for an affordable home, Galbraith said you should not exclude options outside Knox County due to affordability, but renting until the market dies down a little is also a valid option.

“This is not a permanent thing,” he said. “We're going to get through this and we're going to get back to a normal functioning market. It's hard to say how long that is going to take, but I truly believe that is going to happen.”

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