Almost a year ago, our region was devastated by wildfires that began in the Great Smoky Mountains National Park, and swept across our local communities. Since then we’ve been working to rebuild, but we still have a long way to go. The December fires that destroyed hundreds of homes and cabins and cleared property of trees have also caused home values to increase.
Where we are with home values
As we approach the last quarter of 2017, we continue to have a shortage in available real estate listings in our market. This shortage is driven largely by the result of the fires, but also as a result of having a larger pool of buyers than sellers. We have seen a shift from a buyer’s market to a sellers’ market. This means that home values have continued to rise. The overall increase has been around 16 percent, but there are pockets of appreciation that are much higher – even up to 30 percent. Properties with higher increases in sales price include highly sought after cabins, places full of amenities, homes and cabins with amazing mountain views, and new construction projects.
With the rapidly changing real estate market, we’ve begun to experience a bit of crisis with appraisals. When an appraiser considers a home’s value, one of the most important components in the comparison is the sales price of similar properties. However, as prices rise, yesterday’s sold “comparables” went for less than what a buyer is willing to pay today. That means that appraisers have the unhappy job of finding something whose home value directly compares with what is being appraised in a very short time period. This is a very difficult task. However many buyers understand the nature of this situation and have been willing to pay over the “appraised” value. They are confident that what they are buying is worth the price they are paying. Usually they are confident because they have lost several contracts to more aggressive buyers who were willing to bid over the asking price.
This can be very disconcerting to conservative buyers who find it difficult to push past yesterday’s home values. It is also difficult if they purchased a home or cabin in the last few years when buyers were king. Foreclosures and short sales were plentiful and you always offered less than list price and most of the time won the contract. For us in the Great Smoky Mountains market, those days are again behind us – and will hopefully remain so.
Where we’re going with home values
While currently the purchase of an older home or cabin is still less than the cost of building a new one, my expectation is that we will see prices continue to rise into 2018 until we reach a place that the new construction and the older property values meet.
This brings me to what is happening with those who lost homes in the December fire. The first thing we saw was a group of buyers entering the market to repurchase what was lost as soon as they were able to settle with their insurance company. Most buyers reported very cooperative insurance companies and had very positive experiences. They repurchased home and investment cabins in the first quarter of 2017 and have settled in. However, there were many home owners and many more cabin owners who waited to decide whether to build back or buy again. They have now settled with their insurance company and have gotten quotes to rebuild. They have run into some various obstacles to building, though. Some found they were underinsured, while others learned the cost of building is much higher than they expected. For still others, the lot is not as desirable as it once was because what made it attractive was burned, whether that is the natural landscape around the cabin or a popular locale, and may not return for a number of years. Hardest of all for some cabin owners was the discovery that the home they had now falls under new code upgrades making the home either very expensive to be rebuilt to meet those codes, or unable to be built because it wouldn’t be in compliance at all. Therefore, we have a new group of buyers who are entering the market. These buyers have been a part of pushing the inventory down and the prices up.
What does this mean for sellers and buyers? It makes it a good time to sell, as home values are higher and competition is less. Will prices continue to rise? I think so. But they may slow down after this wave of buyers. So if you’re a buyer planning on purchasing within the next two years I would recommend speeding it up. Go ahead and try to lock down what you desire, though you should not panic! Wait for the right property but don’t be so picky and drag your feet that you end up paying 30 percent more in a year from now. Try to keep in mind that no property is perfect. There are always compromises… just like with life.
I love the quote I brought home the other day, “your life doesn’t have to be perfect to be wonderful!” It’s true of your life and true of property!
