After delivering a data-rich presentation on housing market trends at the Greater Chattanooga Realtors’ Economic Outlook Breakfast, Dr. Jessica Lautz opened the floor for audience questions. She addressed topics ranging from mortgage rate forecasts to insurance costs and strategies for first-time buyers navigating a competitive market.
How will the market look in three years?
“We expect mortgage rates to come down in 2026, which will open the affordability box for many buyers who have been on the sidelines. More inventory is already coming to market, which gives buyers more choice and creates a somewhat more level playing field between buyers and sellers.
Homeowners are in a strong position, with significant equity and continued price appreciation. The biggest challenge remains for first-time buyers, but there’s substantial pent-up demand. Much of the millennial generation is still in its late 20s and early 30s, and once rates fall and more homes are available, that demand will be ready to move.”
Will home prices drop?
“No. No one wants to sell and lose equity, and no one wants to leave money on the table. Our forecast calls for prices to continue increasing, with growth in Tennessee running ahead of the national pace.”
How is the insurance market affecting affordability?
“Insurance has become a significant cost factor in homeownership. NAR’s research committee has deployed a national survey to quantify its impact. Affordability is not just about the mortgage and interest rate – it’s also about recurring costs like insurance and commuting. Those add-ons can prevent some buyers from qualifying.”
Are more Americans selling their homes and moving abroad?
“It’s hard to say. There’s a lot of conversation about it on social media, but not all of that translates into action. We don’t have definitive national data showing a significant trend.”
How far will rates drop in 2026?
“Our forecast has rates around 6% in 2026, not 5%. Rates change quickly based on economic data – even last week, we saw movement to 6.5% that wasn’t in our forecast. But a rapid shift to 5% is not part of our near-term outlook.”
Beyond interest rates, what change would most improve affordability?
“Raising the capital gains threshold, which hasn’t been adjusted since 1997, would encourage more homeowners with significant equity to sell and downsize. That would help free up inventory. Student loan debt remains another major hurdle. One positive factor is that new apartment rents have declined somewhat due to increased multifamily construction, which might allow more renters to save for a down payment.”
How can first-time buyers compete in today’s market?
“Many successful first-time buyers are finding creative paths into ownership – living with family to save on rent, buying with a roommate or using FHA, VA and USDA loans. Looking at properties that have been on the market for a while can provide negotiating room.”
Are rising home prices offsetting the benefit of today’s rates being below the historical average?
“Yes. Interest rates are just one part of affordability. Home prices remain above historical norms, and that’s a critical factor when calculating what a buyer can afford. Level-setting with consumers is important – the full cost picture matters.”
In the $200,000-$300,000 range, are sellers more willing to negotiate repairs or concessions?
“Negotiation depends heavily on local market conditions. Many first-time buyers get advice from parents or media that doesn’t match today’s realities. Agents can help by providing accurate, local information on financing options, typical down payments and what’s realistic in the current market.”