Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT   September 2009




                            APPENDI...
Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT   September 2009




                             APPEND...
Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                           September 2009




RESIDENTIAL...
Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                             September 2009



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Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                                           September 2009...
Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                          September 2009



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Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                                             September 20...
Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                         September 2009



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Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                                    September 2009



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Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                                                         ...
Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT   September 2009




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Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                                                         ...
Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                                             September 20...
Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                                              September 2...
Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT   September 2009




         Associates, Inc.          ...
Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                                            September 200...
Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                           September 2009



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Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                              September 2009




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Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                           September 2009



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Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                         September 2009


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Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                           September 2009



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Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT                                                         ...
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Residential Market Analysis

  1. 1. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 APPENDIX A Associates, Inc. Page 1
  2. 2. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 APPENDIX B Associates, Inc. Page 2
  3. 3. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 RESIDENTIAL REAL ESTATE MARKET ANALYSIS A. MARKET FINDINGS SUMMARY The following strategies reflect the Consultant’s recommendation to the Neighborhood Services and Community Development Department how to proceed with implementing the Neighborhood Stabiliza- tion Program. These recommendations reflect current and projected market conditions within the iden- tified Study Regions and the City as a whole. The recommendations were parsed into three cate- gories: [1] a foreclosure strategy; [2] a stabilization strategy; and [3] a revitalization strategy. 1. Foreclosure Strategy Recommendations a.) Identify and map foreclosures within the City The primary recommendation for the City is to establish a current, comprehensive database of all foreclosures in the Study Regions and the City. Throughout this process, the Consultant was able to draw different sources of information with varying levels of data and being up to date. However, none were complete and none were readily able to be mapped. Having a complete and current list of foreclosures that are easily mapped provides the City the tools to pinpoint existing areas of greatest concern as well as monitor changes to foreclosure activity within the City. b.) Develop criteria for acquisition and/or rehabilitation Having a geospatial record of foreclosures within the City is the first step towards mitigating their impacts on local neighborhoods. The second step is determining the implementation strategy for each neighborhood and each unit within those neighborhoods. To this end, it is critical for the City to gain a better understanding of the physical and financial characteristics of these units. The Con- sultant recommends that the City create a supporting database of property assessment informa- tion and building condition for each property. The assessment data can come directly from the City’s assessment records. Property condition information will require on-site inspections. Once collected, this information will provide the framework for making the most appropriate strategic decisions on acquisition, rehabilitation or demolition/redevelopment. 2. Stabilization Strategy a.) Focus immediate investments in Glenwood/Orchard Knob neighborhoods Utilizing a wide-spread effort to enact neighborhood stabilization will not return the results being sought by the City. Simply put, the NSP finding available to the City is not sufficient to effectively impact all neighborhoods that have experienced substantial foreclosure activity. As such, the City would be much better served concentrating the initial investments in select locations that have the greatest chance to reverse foreclosure impacts. The Glenwood and Orchard Knob neighborhoods provide the greatest opportunities, having [1] historically stable ownership and condition levels, [2] proximity to large employers (Memorial Hospital and Parkridge Medical Center); and [3] being adjacent to existing private-sector revitalization efforts in the Highland Park neighborhood. b.) Geographically cluster subsequent investments to build off investment momentum Subsequent investments should be made in areas where private-sector activity is strongest. In the short-term, the Glenwood/Orchard Park area likely will receive the most private sector attention as a result of the NSP investments. However, other areas such as Avondale/Bushtown and Howard Associates, Inc. Page 3
  4. 4. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 likely will benefit from private sector investment as the residential real estate market begins the recovery phase. As such, the City should target subsequent investments in areas where there is support from the private sector. c.) Give priority to multi-lot, large-scale opportunities Individual property actions will provide stabilization for that particular structure, but likely will not be enough to change perceptions about the street or neighborhood where that unit is located. While it is important to address all foreclosure properties, the Consultant recommends the City give priority to investments that encompass several parcels and/or large parcels (2+ acres). These projects provide a greater opportunity for the City to deliver a catalytic project that has the potential to singly reverse perceptions about a given block or even neighborhood. 3. Revitalization Strategy Recommendations a.) Leverage NSP funds with other programs to extend potential impact As mentioned, the NSP funds provided to Chattanooga are not sufficient to address all of the foreclosure impact within the City. As a result, the City will have to focus its investments in specific areas to maximize the benefit of the program. However, there are several existing investment and homeownership programs that can be used in partnership with the NSP funds to leverage this investment and increase the potential impacts. Programs such as Community Development Block Grants (CDBG), weatherization funds and HOME funds can be used in tandem with the NSP funds to increase the number of units impacted and/or address financing gaps of potential buyers. b.) Establish partnership arrangements with non-profit and private housing developers In addition to utilizing parallel funding programs, the City has a number of non-profit agencies that deal in affordable housing provision both within the Focus Areas as well as throughout the City. Most notably, the Chattanooga Neighborhood Enterprise, Inc. has an existing homeownership purchasing program that targets moderate-income households and would allow the City to lever- age the NSP funds through a revolving program. Further coordination with all of these entities needs to occur to identify the true potential partnership areas. c.) Enforce design and construction standards that improve the local community The potential impact of neighborhood stabilization will be enhanced if the City enacts design and construction principles that ensure any rehabilitation or new construction projects are done in a manner that enhances the image of the local neighborhood. These principles should set a high standard for design and construction materials to ensure a quality product, but flexible enough to cover the disparate nature of each Study Area neighborhood. However, the design and construc- tion standards should be done in a manner that respects the character and scale of the local neighborhoods, and does not create a disjointed or contrasting aesthetic. d.) Implement a wide-scale marketing strategy targeting potential market segments The Neighborhood Stabilization Program will only be as successful as the number of potential buy- ers it can attract to the two Study Areas and the rest of the City. While the financial incentives will help in drawing attention to the Eastside and Southside, a strategic marketing campaign will aid in raising awareness about the program and the benefits it provides. To this end, the City should identify target markets (i.e. the medical staff at the two neighborhood hospitals) and implement a proactive marketing campaign to attract these potential program participants. For example, the City could hold seminars at the hospitals detailing the NSP program and providing information on how to qualify and utilize the program. Other outreach efforts could include media advertise- ments and direct marketing materials at civic, religious and membership organizations. Associates, Inc. Page 4
  5. 5. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 B. DEMOGRAPHIC ANALYSIS This section provides the basis for understanding the current and future market potential for residential property in the Eastside and Southside Focus Areas. RKG Associates analyzed demographic trends to clarify differences between the Focus Areas and against the City as a whole. Comparing these changes in the residential populations of each area provides greater insight into the breadth and depth of market shifts occurring within the specified region. Knowledge of these distinct patterns will inform recommendations of the Consultant as to the approaches deemed most suitable for investment in the Focus Areas. Data collected for this analysis primarily come from DemographicsNow, a private online vendor that compiles and analyzes demographic and economic data and formulates projections using a propri- etary methodology. In certain circumstances, this data is complimented by observations of local stake- holders and community leaders gathered through interviews with the Consultant. It is important to note that the data collected from DemographicsNow is reflective of census tracts and block groups, not spe- cific neighborhood boundaries. However, the data is representative of the Focus Areas and is suffi- cient for this analysis. 1. Household Formation Figure 1 The Eastside and Southside Focus Areas HOUSEHOLD CHANGE historically have experienced steady By Study Area; 1980-2008 declines in number of households. Be- 10% tween 1980 and 2008, Eastside neigh- borhoods have lost 22% of total house- 5% holds while the Southside area has seen a nearly 30% decline (Figure 1). Con- 0% versely, a growth in net households (10%) has occurred within the City since -5% 1980 further exemplifying the afore- mentioned losses. The losses within the two Focus Areas likely can be attributed -10% to a number of factors that includes in- sufficient levels of public and private in- -15% vestment, social issues such as safety con- cerns, low levels of interest among po- -20% tential homeowners, and reductions in 1980-1990 1990-2000 2000-2008 housing supply as reported by real es- tate professionals in the area. Most re- Eastside Southside Chattanooga cently, the recorded high rate of fore- closure activity is also contributing to net Source: DemographicsNow & RKG Associates, Inc., 2009 household loss. These issues are ad- dressed in more detail in the residential real estate market analysis section. Recently, the decline in households has been greatest among neighborhoods located closest to the downtown and central portions of the City. Since 2000, Glenwood and Orchard Knob in the Eastside have seen 15% and 10% declines, respectively, while the Howard neighborhood in the Southside Fo- cus Area has experienced a 22% decline. Much of the losses incurred in Howard are likely due to the demolition of the 188-unit Poss Homes public housing complex. Currently, the lot where it was located remains vacant. While the household losses in Glenwood and Orchard Knob cannot be necessarily at- tributed to one event or trend, many local real estate professionals indicated foreclosure activity in these neighborhoods has contributed to the losses. It was said that these neighborhoods were attract- Associates, Inc. Page 5
  6. 6. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 ing many out-of-town homebuyers that were investing in the rehabilitation of these houses. After the values of many of these homes decreased during the current recession, many homeowners were left owing more on the unit than it is worth. Focusing stabilization efforts in these neighborhoods likely will provide the greatest benefits as these areas are in greatest need. In addition to declining household bases, population has decreased at even greater rates in the East- side (-32%) and Southside (-44%) neighborhoods during this time, in turn, shrinking the average house- hold sizes of each area. However, the average household size in both Focus Areas (2.3+) remains higher than the average throughout the City (2.18). This shows that households within the Eastside and Southside are generally more apt to demand housing units with a greater number of bedrooms than what may be demanded by households in other portions of the City. This is important to consider dur- ing the current investment process as preparing foreclosed or vacant properties should adhere to the market profile. 2. Age of Population The population in the Eastside and Southside Focus Areas skews slightly younger in age compared with the City. Overall, the median age in these areas is 37 and 36, respectively, compared with 39 in the City. In addition, analyzing age cohorts in each area also shows a high concentration of children and adolescents in the Eastside and Southside areas. More than 30% of the population in both the East- side and Southside is younger than 20-years-old. By comparison, the City’s under 20 population ac- counts for a more modest 25% of all residents. The high percentage of under 20-year-olds in the Eastside and Southside is likely a factor in maintaining higher average household sizes as most in this age group are children too young to move away from their parents, family members or guardians. Consequently, strategies for promoting homeownership in the identified neighborhoods may benefit by targeting individuals and families with young children as a critical mass is already established. The Eastside and Southside areas also have comparatively lower concentrations of 20 to 44-year-olds (28%) than in the City (33%). It was reported to the Consultant that it is common for Focus Area resi- dents to seek housing outside of the area once they have achieved the means to do so. It is generally understood that the 20 to 44-year-old age cohort typically represents a majority of first-time home- buyers as household incomes within this group often reach the point where homeownership becomes af- fordable. Household income profiles (discussed in greater detail in the following section) in the East- side and Southside Focus Areas support this assertion as the majority of these households have incomes insufficient for homeownership. Understanding this, a strategy needs to be employed that entices area households that are able afford homes to purchase housing in the area. This strategy should likely be rooted in delivering housing options that are priced below comparable areas and provide amenities similar to those found in competitive areas. 3. Household Income The Eastside and Southside Focus Areas are heavily concentrated with low-income households. In 2008, more than half of the households in these areas earned less than $25,000 (Figure 2) and ap- proximately 65% of this total earned less than $15,000. Much of this can be attributed to the high rates of unemployment in these areas, which severely limits the earning potential among households. In 2008, unemployment in the Eastside and Southside Focus Areas was 14.7% and 16.3%, respectively. These totals are substantially higher than the City’s rate of 11.2%. This high percentage of low-in- come households is an obstacle in recruiting new homeowners from within these areas. Subsequently, any initiatives focused on increasing homeownership among the current residents will need to provide more comprehensive assistance in preparing for owning a home. Associates, Inc. Page 6
  7. 7. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 Households earning between $25,000 Figure 2 and $50,000 annually should be consid- ered the target market for promoting HOUSEHOLD INCOME LEVELS homeownership in the Eastside and By Study Area; 2008 Southside Focus Areas. These house- holds are likely able to absorb the rela- 60% tively low costs of housing in the Focus Areas (discussed later in the residential 50% real estate market analysis section), but have limited options in nearby, higher- 40% priced areas. The neighborhoods with the highest percentage of households 30% earning within this range include Glen- wood (33%) in the Eastside and Alton 20% Park (30%) in the Southside. It should be noted that the recently developed 10% Hope VI project in Alton Park, The Vil- lages of Alton Park, has provided own- ership units priced in the range afford- 0% able to households earning between Eastside Southside Chattanooga $25,000 and $50,000. However, anec- dotal information states that construction Under $25k $25k to $50k $50k to $100k Over $100k and interest has stalled for these units as Source: DemographicsNow & RKG Associates, Inc., 2009 housing values have declined in the re- gion while material and labor costs have remained relatively unchanged. 4. Implications The demographic analysis of the Focus Areas reveals that the Eastside and Southside face competitive disadvantages compared with the City. A concentration of low-income households combined with dis- investment in the form of declining households and population makes it readily apparent that these ar- eas require outside assistance. While demographic characteristics are largely uniform throughout each neighborhood within the Focus Areas, there are exceptions that should be viewed as assets to base stabilization and revitalization efforts upon. Declining households and populations typically result in increased housing vacancy rates. The short- term dilemmas posed by this trend are deferred maintenance of residential properties, safety con- cerns, and decreased interest among potential homebuyers looking for community stability. Each of these issues was raised by the various real estate professionals interviewed as they spoke about the perceptions of the Eastside and Southside Focus Areas. However, an opportunity exists to accumulate contiguous vacant properties and invest in a singular, large-scale project that is visible in the communi- ty. This project could occur on a single street or block and introduce a housing product that is aligned with market demands and provides a focal point for a neighborhood. One example for such a project might be in the Eastside neighborhood of Glenwood. This neighborhood has experienced the largest percentage decline in households since the start of the decade and maintains a relatively large resi- dent population with the ability to afford such a product. Homeownership readiness is also an issue that needs to be addressed in the Focus Areas. Currently, the income profiles in the Eastside and Southside reveal that a majority of households do not earn enough to purchase either a newly-developed or rehabbed, market-rate housing unit. In addition, it is highly likely that those that can afford such a house are looking outside of the area as competitively- priced housing exists elsewhere in the City. These two factors ensure that rental properties in both ar- eas will continue to remain prevalent. Anecdotal information states that the high number of rental Associates, Inc. Page 7
  8. 8. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 properties contributes to deteriorating conditions in the neighborhoods as many owners of these prop- erties live out-of-town and do not invest properly in the maintenance of their properties. In order to increase owner-occupied housing in the areas and restore higher levels of accountability, programs will need to be introduced that provide holistic homeownership assistance or incentives to current residents who want to purchase a home, but may not have the means. These programs might include lease-to- own and/or credit counseling options. It may also include construction of housing units with value- added amenities not readily available elsewhere in the City to capture the attention of residents that can afford a house, but are also looking in other competitive areas. The Jefferson Heights project is a good example of this, where fiber optic lines were installed to give residents access to high-speed in- ternet connections not widely available in the City. C. RESIDENTIAL REAL ESTATE MARKET ANALYSIS This section provides an overview of the residential real estate market in and around the Eastside and Southside Focus Areas. It includes detailed residential profiles of the Focus Areas and evaluates the factors influencing development trends. Supply and demand of housing units is also analyzed by eval- uating value and sales data. Lastly, foreclosure activity is examined to better understand the impacts these properties have on the local and regional market. Data for this analysis was collected through a variety of methods. The initial analysis began with field observations of the Focus Areas conducted by RKG Associates to gain an on-the-ground perspective of the different neighborhoods. This empirical analysis was then compared against an analysis of the real estate assessment database of Hamilton County , which was obtained from the County Assessor of Property. Additional insight on housing conditions and occupancy was provided in the 2007 Housing Survey prepared by J-Quad Planning Group. Sales data from the property assessment database was utilized in the supply and demand analysis and was complimented with data provided to the Con- sultant from the regional Multiple Listing Service (MLS). To better understand foreclosure activity, data was obtained through Foreclosure.com, an online provider of foreclosure listings collected from multiple lenders, government agencies, and direct sellers. All of this information is corroborated with in-person interviews conducted by the Consultant with local real estate professionals and community leaders to gauge how the residential real estate market in Chattanooga is evolving. 1. Residential Profiles Most of the residential space in the Eastside and Southside Focus Areas is comprised of single-family, detached housing. In fact, these units, defined as one family units by the County property assessor, ac- count for more than 75% of the total amount of residential square footage in these two areas (Figure 3). The prevalence of this type unit creates a low-density, suburban environment in the neighborhoods, where apartment or large, multi-family offerings are strategically placed near commercial centers and along major access corridors. The majority of the multi-family units in these areas are concentrated in the Eastside. Two of the larger apartment complexes in this area are the 144-unit Battery Heights complex in the northern end and the 131-unit Woodlawn complex off of Wilson Street and Arlington Avenue. Anecdotal information states that the deteriorating conditions and safety concerns associated with the Woodlawn complex have negatively impacted the surrounding community. Associates, Inc. Page 8
  9. 9. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 Duplexes also occupy a substantial por- Figure 3 tion (16%) of residential space in the two Focus Areas. Most of the units con- tained within these duplexes are occu- RESIDENTIAL PROFILE By Square Footage; Eastside and Southside pied by renters or are vacant. Only 100 of the nearly 1,500 duplex units 76.7% are owner-occupied. Many interview respondents said that the high number of duplexes in the area has deepened negative perceptions of the Focus Area due largely to the low rent rates that at- tract problematic tenants. Furthermore, the Consultant’s windshield survey of the Focus Areas revealed many of the rental duplex properties have experienced varying levels of deterioration due to deferred maintenance decisions. The 1.2% ratio of one family units to duplexes is 7.1% similar in both the Eastside (3:1) and 0.6% 14.4% Southside (3.6:1) Focus Areas; however, One Family Duplex (owner-occupied) there are three times the number of du- Duplex (non-owner-occupied) Triplex plexes in the Eastside. The majority of Multi-Family (4+ Units) these Eastside duplexes are also located in relatively close proximity within Avon- Source: Hamilton County Property Assessor & RKG Associates, Inc., 2009 dale and Bushtown neighborhoods, cre- ating a greater sense of concentration and further heightening these perceptions. Specific locations of housing unit concentrations are elabo- rated in greater detail in the following section along with a comparison of housing type throughout the remainder of the City. 2. Land Use by Housing Type The high percentage of one family housing units extends beyond the Eastside and Southside Focus Ar- eas and into most portions of the City (Map 1). However, one major difference between the Focus Ar- eas and the remainder of the City is the higher percentage of apartment and condominium units locat- ed throughout the City. The majority of these complexes are located along major interstates and thor- oughfares where connectivity and accessibility to other areas is greatest. In particular, many of these housing options are located near the Hamilton Place Mall near Interstate 75 and in North Chattanooga near Route 27. The most easily accessible point to the highway system in the Focus Area lies at the northern end in the Southside study area likely prohibiting a similar market demand for market-rate multi-family housing options in the Focus Area. Map 1 also shows the location of greatest residential concentrations. For instance, housing is much more concentrated in the Eastside study area than in the Southside. With the exception of the Cedar Hill neighborhood, Southside study area neighborhoods include large tracts of land that are either va- cant or used for commercial or industrial purposes. This relatively higher concentration of residential land uses in the Eastside provides a competitive advantage over the Southside with respect to neigh- borhood revitalization. For example, housing investments occurring in the Eastside produce a stronger possibility of positive spillover effects into adjoining neighborhoods. It should be noted that the Consultant also investigated the potential for household growth in the East- side due to the new Volkswagen facility coming online. This facility will occupy large portions of land at the “Volunteer Site” located northeast of the Eastside study area. However, the large majority of local real estate professionals interviewed indicated that only a modest number of the projected influx Associates, Inc. Page 9
  10. 10. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 of new employees likely will have an interest in locating in the Eastside neighborhoods. The primary reasons cited were the distance, which includes multiple traffic lights along Routes 58 and 17, and the availability of housing in the Ooltewah and Brainerd areas, which are situated nearby. None be- lieved the Southside was a viable location for new Volkswagen employees. 3. Development Trends The Eastside and Southside Focus Areas have experienced similar residential growth patterns. Howev- er, subtle differences exist between the two with respect to average unit sizes and average unit val- ues. The following sections detail the development trends of these two Focus Areas and are followed by a brief summary of trends within the remainder of the City. a) Eastside Study Area Most of the residential development occurring in the Eastside study area over the past decade has been one family units. The 215 one family units constructed during this time represent a 7% in- crease from the total built prior to 1999 (Table 1). The Eastside has experienced steady growth in this sector during this time as at least 14 units have been built each year. The heaviest construc- tion activity occurred in 2005 and 2006 as 30 and 26 one family units were built, respectively. This follows a national trend as construction of housing escalated during the middle of the decade as a result of the housing “boom.”. However, the average size of units built since 1999 (1,241 square feet) is smaller than the average size of older units (1,316 SF). This conflicts with the recent national trend of increasing housing sizes. This ‘growing smaller’ trend likely is reflective of de- creasing average household sizes and attempts to maintain housing prices and construction costs in line with the target market’s ability to pay. Conversely, the average size of an individual unit within a duplex built since 1999 has increased by approximately 180 square feet compared with the average size of older units. However, only 21 duplexes have been built since 1999 and one of these is reported to be 3,000 square feet, skewing the overall average unit size. Table 1 Residential Development Trends Eastside Neighborhoods Avg. Total Building Avg. Housing Type Unit Count¹ Acreage Building SF Land AV Building AV Total AV SF/Unit AV/Unit Value/SF FAR PRE 1999 One Family 3,120 636.6 4,106,503 $21,428,500 $134,563,800 $155,992,300 1,316 $49,998 $32.77 0.15 Duplex (non-owner-occupied) 990 87.4 821,856 $2,733,300 $24,271,400 $27,004,700 830 $27,277 $29.53 0.22 Duplex (owner-occupied) 74 7.7 68,644 $267,800 $2,068,650 $2,336,450 928 $31,574 $30.14 0.20 Triplex 45 3.3 35,074 $138,400 $830,000 $968,400 779 $21,520 $23.66 0.24 Condominium 0 0.0 0 $0 $0 $0 0 $0 $0.00 0.00 Multi-Family (4+ Units) 21 31.9 368,072 $1,155,400 $8,327,100 $9,482,500 N/A N/A $22.62 0.27 1999-PRESENT One Family 215 34.0 266,797 $1,190,400 $18,913,600 $20,104,000 1,241 $93,507 $70.89 0.18 Duplex (non-owner-occupied) 42 3.9 42,551 $104,800 $2,084,600 $2,189,400 1,013 $52,129 $48.99 0.25 Duplex (owner-occupied) 0 0.0 0 $0 $0 $0 0 $0 $0.00 0.00 Triplex 0 0.0 0 $0 $0 $0 0 $0 $0.00 0.00 Condominium 0 0.0 0 $0 $0 $0 0 $0 $0.00 0.00 Multi-Family (4+ Units) 2 6.1 94,687 $427,500 $4,287,500 $4,715,000 N/A N/A $45.28 0.36 TOTAL One Family 3,335 670.6 4,373,300 $22,618,900 $153,477,400 $176,096,300 1,311 $52,802 $35.09 0.15 Duplex (non-owner-occupied) 1,032 91.3 864,407 $2,838,100 $26,356,000 $29,194,100 838 $28,289 $30.49 0.22 Duplex (owner-occupied) 74 7.7 68,644 $267,800 $2,068,650 $2,336,450 928 $31,574 $30.14 0.20 Triplex 45 3.3 35,074 $138,400 $830,000 $968,400 779 $21,520 $23.66 0.24 Condominium 0 0.0 0 $0 $0 $0 0 $0 $0.00 0.00 Multi-Family (4+ Units) 23 38.0 462,759 $1,582,900 $12,614,600 $14,197,500 N/A N/A $27.26 0.28 Source: Hamilton County Property Assessor & RKG Associates, Inc., 2009 ¹ Unit Count figures for Multi-Family represent the amount of parcel records Note: Pre 1999 apartment complexes include 144-unit Battery Heights, 100-unit Woodlawn, 31-unit Woodlawn II, 32-unit Windsor Terrace, 16-unit Sundown, & complex at 2608 Glenwood Pkwy Note: 1999-Present apartment complexes include 57-unit The Oaks at Camden (2007) & complex at 457 Dodson Ave (1999) Associates, Inc. Page 10
  11. 11. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 Associates, Inc. Page 11
  12. 12. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 With respect to total square footage, multi-family (4+ units) housing options represent the greatest growth in construction activity in the Eastside. Approximately 20% of the total multi-family space in the Eastside has been built since 1999. The 58,774 SF, 57-unit The Oaks at Camden apartment complex, a Housing Authority project aimed at providing work force housing, along Dodson Av- enue accounts for most of this development. The high rental population due to relatively low levels of area income likely is the one of the primary reasons for the large increase in development of the multi-family units in the Eastside. b) Southside Study Area Residential development trends in the Southside study area mirror much of what has occurred in the Eastside. Since 1999, construction of one family units has increased by 9% (117 units) and a modest amount of larger duplexes have been added. However, the multi-family (4+ units) hous- ing has increased substantially. This is due to the development of the 70-unit Stone Ridge Park apartment complex. It occupies more than 72,000 SF of space and is located in the Alton Park neighborhood. This 2005 development nearly tripled the total amount of multi-family housing that existed in the area prior to its construction. It also stands as an example of the relatively limited market-rate, multi-family options available to area residents compared with those in the remain- der of the City. Table 2 Residential Development Trends Southside Neighborhoods Avg. Total Building Avg. Housing Type Unit Count¹ Acreage Building SF Land AV Building AV Total AV SF/Unit AV/Unit Value/SF FAR PRE 1999 One Family 1,281 268.6 1,556,460 $9,963,600 $44,337,700 $54,301,300 1,215 $42,390 $28.49 0.13 Duplex (non-owner-occupied) 346 27.7 268,414 $792,600 $6,733,400 $7,526,000 776 $21,751 $25.09 0.22 Duplex (owner-occupied) 26 2.2 22,768 $79,900 $571,400 $651,300 876 $25,050 $25.10 0.24 Triplex 18 1.3 10,824 $51,500 $365,300 $416,800 601 $23,156 $33.75 0.19 Condominium 0 0.0 0 $0 $0 $0 0 $0 $0.00 0.00 Multi-Family (4+ Units) 7 2.4 24,540 $68,300 $669,700 $738,000 N/A N/A $27.29 0.23 1999-PRESENT One Family 117 18.0 155,448 $634,700 $12,216,600 $12,851,300 1,329 $109,840 $78.59 0.20 Duplex (non-owner-occupied) 12 1.2 10,964 $58,500 $601,500 $660,000 914 $55,000 $54.86 0.21 Duplex (owner-occupied) 0 0.0 0 $0 $0 $0 0 $0 $0.00 0.00 Triplex 0 0.0 0 $0 $0 $0 0 $0 $0.00 0.00 Condominium 0 0.0 0 $0 $0 $0 0 $0 $0.00 0.00 Multi-Family (4+ Units) 2 5.3 77,031 $295,000 $3,663,300 $3,958,300 N/A N/A $47.56 0.33 TOTAL One Family 1,398 286.6 1,711,908 $10,598,300 $56,554,300 $67,152,600 1,225 $48,035 $33.04 0.14 Duplex (non-owner-occupied) 358 29.0 279,378 $851,100 $7,334,900 $8,186,000 780 $22,866 $26.25 0.22 Duplex (owner-occupied) 26 2.2 22,768 $79,900 $571,400 $651,300 876 $25,050 $25.10 0.24 Triplex 18 1.3 10,824 $51,500 $365,300 $416,800 601 $23,156 $33.75 0.19 Condominium 0 0.0 0 $0 $0 $0 0 $0 $0.00 0.00 Multi-Family (4+ Units) 9 7.7 101,571 $363,300 $4,333,000 $4,696,300 N/A N/A $42.66 0.30 Source: Hamilton County, TN Property Assessor & RKG Associates, Inc., 2009 ¹ Unit Count figures for Multi-Family represent the amount of parcel records Note: Stone Ridge Park Apts is the only apartment complex in the area. It was built in 2005 and contains 70 units. In addition, there is a slight disparity between Southside and Eastside development patterns in the increasing average size of one family units. The 117 units built since 1999 in the Southside have an average size of 1,329 SF, approximately 100 SF larger than units built prior to 1999 (Table 2). One factor heavily influencing this change is the relatively large size of units in The Villages at Alton Park, a Housing Authority Hope VI project. While the development is not yet completed, 44 one family units comprised of three different models have been developed in this community. The various models are approximately 1,400, 1,500, and 1,700 SF in size according to the project’s development partner. Associates, Inc. Page 12
  13. 13. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 c) Remainder of the City Analyzing the housing options within the remainder of the City and their related development trends shows that the area as a whole is not particularly comparable with the Focus Area. For in- stance, the average size of a one family unit built since 1999 is nearly 2,400 SF while older units average 1,800 SF, 500 SF more than the average newer unit in the Southside. In addition, these newer units sit on lots that average 0.50 acres, as compared to less than 0.20 acre lots in the Fo- cus Area. Other differences include the availability of condominiums and townhomes in other parts of the City along with a smaller concentration of duplexes. However, local real estate profession- als suggest that particular areas within and in close proximity of the City have comparable hous- ing options based on size, type, and values/pricing. To provide a competitive analysis, RKG Asso- ciates utilized sales data from the Multiple Listing Service (MLS) that includes specific data on housing in these localized areas. This analysis is included later in this report. 4. Housing Values The lowest housing values in the City are concentrated in the Eastside and Southside Focus Areas. Map 2 displays the building values for each residential parcel in the City on a per square foot basis. Con- trary to many other areas throughout the City, a high percentage of residential structures are valued at $30/SF and below in these areas. These low values likely are partially the result of two factors; deteriorating conditions due to low levels of maintenance and increasing age of area units. The comparatively modest neighborhood conditions have had a negative impact on housing values throughout the area. According to the 2007 J-Quad Planning Group housing survey, a majority of housing units in many of the Focus Area neighborhoods require minor repairs. These include Avondale (66%), Cedar Hill (60%), East Chattanooga (70%), Glenwood (60%), Howard (59%), and Piney Woods (72%). In addition, the other neighborhoods in the Focus Area have reportedly high rates of housing units in need of major repair. These include Alton Park (35%), Bushtown (22%), Churchville (28%), and Orchard Knob (30%). However, proper investment strategies that focus on improving these conditions can begin to stabilize housing values in the area and promote additional investment from other sources. While much of the housing in the Focus Area is valued at $30/SF or below, Figure 4 newer units built since 1999 have sub- stantially higher values. For instance, the AVERAGE VALUE/HOUSING UNIT By Age of Unit one family units in the Eastside and Southside Focus Areas are valued at $120 $71/SF and $79/SF, respectively. $100 These values equate to overall average values hovering around $100,000 $80 based on the average size of units (Fig- ure 4). In addition, it should be noted $60 that the disparity in values is also relat- ed to the age of the older units, which d n u o h a T s $40 are more likely in need of repair. One family units built prior to 1999 have me- $20 dian build years of 1940 (Eastside) and $0 1935 (Southside). While the newer units do have much higher values, many are One-Family Duplex One-Family Duplex infill units due to the limited availability Eastside Southside of land in the area. This dispersion of newer properties restricts the potential Built Prior to 1999 Built Between 1999 & Present level of positive impact these units can Source: Hamilton County Property Assessor & RKG Associates, Inc., 2009 Associates, Inc. Page 13
  14. 14. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 have on each community. A concentrated effort to provide new or rehabbed housing in an area, such as with The Villages at Alton Park, will provide for a more visible impetus in attracting increased levels of interest and investment in an area. 5. Sales Analysis Recent sale prices of housing units in the Eastside and Southside Focus Areas on average fall substan- tially below their respective housing values. In analyzing all housing sales occurring on the open mar- ket (warranty deed transactions) in 2008, units in the Focus Area sold at 72% of their appraised val- ues (Figure 5). For example, the average sale price for a housing unit in the Eastside in 2008 was $43,300 based on 126 sales. These same units were appraised at an average of $60,200 each. This pattern worsened through the first half of 2009 as ratios declined to 62% in the Eastside and 65% in the Southside. Further emphasizing this trend, 50 one family units have sold in the Eastside thus far in 2009 and 27 of these have sold for less than 50% of their appraised values. According to most local real estate professionals interviewed, this pattern is largely the result of the high concentration of investors searching for rental properties among the pool of potential homebuyers. In stark contrast with the Focus Areas, housing sale price to value ratios in other parts of the City re- main relatively high since the start of 2008 as sale prices are averaging at least 90% of appraised values. In order to depict differences in sales trends between various sections of the City, the Consul- tant examined sales in the western portion, eastern portion, and central portion of the City less the Fo- cus Area. With respect to sale to value ratios among these three areas, only subtle differences exist. The western portion, which primarily consists of North Chattanooga and Lookout Mountain, has the highest sale to value ratio as sale prices are essentially equal to housing values. This area is also the only one where this Figure 5 ratio has not declined from 2008 to 2009. However, examining actual aver- HOUSING SALE PRICE/VALUE RATIO age sale prices between all areas shows Study Neighborhoods vs. Rest of City much greater discrepancies. 1.1 Average sale prices in the Focus Areas 1.0 are substantially lower than in any other section of the City. Since 2008, aver- 0.9 age sale prices in the Eastside and Southside Focus Areas are $40,700 and 0.8 $37,000, respectively. In comparison, the average sale price the central por- 0.7 tion of the City less the Focus Area is more than twice these figures ($97,800), 0.6 but much lower than the $169,000 and $191,000 in the eastern and western 0.5 portions, respectively. These figures are further evidence that much of the housing Eastside Southside Center East West Study Study City City City located in other parts of the City is not Area Area competitive with housing in the Focus Area. Other nearby areas deemed 2008 2009 YTD competitive are detailed in the next sec- Source: Hamilton County Property Assessor & RKG Associates, Inc., 2009 tion of this report. Associates, Inc. Page 14
  15. 15. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 Associates, Inc. Page 15
  16. 16. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 As is the case with housing values, recent sale prices of newer units are much higher compared with sale prices of older units. However, since the start of 2008, there have been relatively few newly built housing options available for sale in the Focus Area. In fact, only 38 open market sales of units built since 2000 have been recorded in this time. The average sale price of these units is $85,000. Of the 267 other sales that occurred since 2008 in this area, 256 of these were of houses built prior to 1970. The average sale price of these units is $33,200. The disparity shows that a much higher premium ex- ists for newer houses in the area. However, the $85,000 average sale price is lower than the aver- age values for newly built houses (approximately $100,000) in the area demonstrating a relatively weak market. 7. Competitive Markets Four localized areas were identified as offering comparable housing options and pricing with the Fo- cus Area. They were identified in interviews with local Realtors and corroborated by sales data col- lected through the MLS. The areas include Red Bank, East Ridge, the Highway 58 corridor, which ex- tends between the “Volunteer Site” and the Eastside study area, and the area located between the Eastside and Southside Focus Areas, which shall be referred to as Central City/Downtown. While pric- ing is competitive in Red Bank, this area is excluded from this analysis due to its location on the oppo- site side of the River. It should be noted that the sales figures used by the County Assessor (used in previous sections) and the MLS are slightly different as they employ separate methodologies. Howev- er, the inherent calculated sales trends are relatively consistent among both data sets and are suffi- cient for the purpose of this analysis. Since the start of 2008, average sale prices in the Focus Area are less than the averages of the three identified competitive areas. The average sale price in the Highway 58 ($75,760) area is the most consistent with those in the Eastside ($73,174) and Southside ($53,544) Focus Areas (Table 3). This similarity gives this area an advantage over the Eastside study area in attracting the incoming popula- tion associated with the new Volkswagen facility as it lies between the two. However, both the East- side and Southside have a pricing advantage over the Central City/Downtown area in providing af- fordable housing to those that work in the central business district. Table 3 Sales Activity; Competitive Area Comparison January 2008-August 2009 MLS Code Area Description Units Sold Avg List Price Avg Sold Price % Difference Avg DOM 2A Eastside Area 217 $77,400 $73,174 -5.5% 100-107 2C Southside Area 172 $57,118 $53,544 -6.3% 87-102 2B Central City/Downtown 172 $87,938 $80,447 -8.5% 110-125 3A/B East Ridge 309 $101,955 $98,710 -3.2% 90-104 5A Highway 58 81 $78,110 $75,760 -3.0% 116-117 Source: MLS & RKG Associates, Inc., 2009 Most interview respondents stated that while average housing prices are slightly higher in East Ridge, this area holds two advantages over comparably priced areas in Chattanooga. While not substanti- ated by the Consultant, it is said that many families choose to locate to East Ridge because of the quality of schools in the area. Secondly, its close proximity to both Interstate 75 and 24 provides easy access to downtown, nearby retail centers (i.e. Hamilton Place Mall), and densely-populated areas in Georgia such as Ringgold. In order to remain competitive with these comparably priced areas, identi- fying the assets within the Focus Area should be a prominent feature in recruiting potential homebuy- ers. Associates, Inc. Page 16
  17. 17. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 8. Foreclosure Activity The reported high rate of foreclosures in the Focus Area is contributing to lowering housing occupancy rates. Many of these recently vacated units may stay on the market for upwards of three months ac- cording to the average time it takes a unit to sell in the area (Table 3). Vacant units such as these have the potential to negatively affect a community as perceptions of abandonment can arise. In or- der to address this trend, it is necessary to examine the reasons causing these foreclosures. Interviews with local real estate professionals provided a better understanding of reasons for area foreclosures. Most agreed that typical causes, such as loss of employment, declining home values, and/or changing mortgage conditions, are the primary reasons for area homes entering foreclosure. However, some also stated another reason more closely aligned with area ownership profiles. It was reported that at least one of the large number of investors in the area was able to refinance multiple mortgages to draw out equity prior to the substantial decline in housing values. Afterwards, this in- vestor ceased making mortgage payments until the current tenant(s) was forced to leave due to a foreclosure. While this may be a unique and extreme example, it was agreed that some of the high number of area renters are being forced out of their homes, many without proper warning, because the property owner was unable or ceased to make mortgage payments. No one cause was reported to have the biggest affect on foreclosures, but the high renter population in the area does maintain a disadvantageous position. Data collected by Asset Property Disposition (APD) through Foreclosure.com shows that a concentration of these local foreclosures has been occurring in the Eastside study area. According to this data, the Bushtown and Orchard Knob neighborhoods show multiple foreclosures occurring in close proximity. These areas have the potential to be target areas for public investment as they represent areas of greatest need. In addition, they are the neighborhoods with the highest percentages of vacant build- ings within the Eastside study area according to the J-Quad survey. Bushtown had a 5.8% building vacancy rate and the recorded rate in Orchard Knob was 4.5%. 9. Implications It is evident in this analysis that housing stabilization efforts in the Eastside and Southside Focus Areas will rely on improving housing values and isolating areas best suited for focused investment. Values of housing in the two Focus Areas fall below that of other competitive areas. These lower values are in- dicative of lower levels of maintenance and an older housing stock, which will likely act as a deterrent for potential buyers. While it may seem as though the low values provide a greater range of afford- ability for potential homebuyers, the City already has a high level of housing units considered afford- able (detailed in the following section); therefore, improving current values should be a primary goal in stabilization. This process can be accomplished in a variety of ways. In rehabbing or new construc- tion, the quality of construction needs to exceed the price comparable supply in the competitive areas. Methods to achieve this may include higher quality construction materials, upgraded appliances and fit-out and/or energy-efficient windows and insulation. One of the largest obstacles in initiating a successful stabilization effort throughout the Focus Areas re- lates to the overall size of the areas. These areas consist of ten different neighborhoods, which are not all adjoining each other. Providing investment in all neighborhoods likely will dilute the potential for success and positive spillover effects in neighboring areas. In order to best utilize available assistance, investments should be made in specific areas that will result in visible change. It is the recommendation of the Consultant that the strongest potential for widespread stabilization is located in the Eastside Fo- cus Area in the Glenwood and Orchard Knob neighborhoods. The residential density and existing reinvestment levels in these areas are the primary reasons for this assertion. Any targeted localized investment has a greater potential to attract additional private investment in nearby, adjoining com- munities through subsequent public and private-sector initiatives. Associates, Inc. Page 17
  18. 18. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 D. AFFORDABILITY ANALYSIS This section of the report examines the relative affordability for new housing in the Eastside and South- side Focus Areas. Multiple data sources were utilized in this analysis. Quantitative demographic data was derived from ESRI Business Analyst, the City of Chattanooga property assessment database, and the Multiple Listing Service (MLS). Other qualitative data was obtained through local real estate pro- fessionals and used to support the Consultant findings. 1. Methodology The Consultant performed a detailed supply and demand analysis for households and housing at se- lect affordability price points, determined by the HUD-defined area median income levels (AMI) for a 4-person household in the metropolitan Chattanooga area ($56,125). The analysis broke down hous- ing and the local population into income groupings defined as ‘very low’ (30% to 50% of AMI), ‘low’ (50% to 80% AMI), ‘moderate’ (80% to 100% AMI) and ‘market’ (100% to 120% AMI). To determine the local competitive supply for housing, the Consultant had to identify the value points related to each of the income threshold categories. The Consultant approximated a “high-end” and “low-end” of value by categorizing the potential purchasing pool of households into two distinct buying Table 4 Housing Affordability Thresholds Conventional and FHA Homebuyers 30% of AMI 50% of AMI 80% of AMI AMI 120% of AMI FHA HOMEBUYER Threshold Home Value $55,065 $91,775 $146,840 $183,550 $220,260 Downpayment 3.5% 3.5% 3.5% 3.5% 3.5% Mortgage Total (%) 96.5% 96.5% 96.5% 96.5% 96.5% Current Interest Rates 6.13% 6.13% 6.13% 6.13% 6.13% Annual Mortgage Cost $3,855 $6,425 $10,279 $12,849 $15,419 Real Estate Taxes $737 $1,229 $1,966 $2,458 $2,949 Insurance Cost $122 $204 $326 $408 $489 Total Annual Cost $4,714 $7,857 $12,572 $15,715 $18,858 Required Gross Income $16,837 $28,062 $44,900 $56,124 $67,349 TARGET INCOME LEVEL $16,838 $28,063 $44,900 $56,125 $67,350 Difference $0 $0 $0 $1 $1 CONVENTIONAL HOMEBUYER Threshold Home Value $80,376 $133,960 $214,336 $267,920 $321,504 Downpayment 20.0% 20.0% 20.0% 20.0% 20.0% Mortgage Total (%) 80.0% 80.0% 80.0% 80.0% 80.0% Current Interest Rates 5.38% 5.38% 5.38% 5.38% 5.38% Annual Mortgage Cost $4,302 $7,169 $11,471 $14,338 $17,206 Real Estate Taxes $1,076 $1,794 $2,870 $3,587 $4,305 Insurance Cost $179 $298 $476 $595 $714 Total Annual Cost $5,556 $9,261 $14,817 $18,521 $22,225 Required Gross Income $16,837 $28,062 $44,900 $56,125 $67,350 TARGET INCOME LEVEL $16,838 $28,063 $44,900 $56,125 $67,350 Difference $0 $0 $0 $0 $0 Source: RKG Associates, 2009 classes. The categories are labeled; [1] FHA Homebuyers and [2] Conventional Homebuyers. The Associates, Inc. Page 18
  19. 19. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 FHA Homebuyer group includes all households do not have the traditional 20% downpayment for the home, and is assumed to require the use of an Federal Housing Administration (FHA) style mortgage. This group is assumed to only have a 3.5% down payment, requiring them to follow FHA guidelines and pay primary mortgage insurance (PMI). The second group includes all households under the as- sumption that they have the requisite 20% downpayment available through savings or existing home equity to qualify for a conventional mortgage. Using current mortgage, PMI, insurance and real prop- erty tax rates, the Consultant was able to generate the corresponding value of home an FHA and con- ventional homebuyer would be able to afford (Table 4) Once the corresponding home values were established, the Consultant used the City’s assessment database to parse single family housing units within the Eastside, Southside and rest of the City. The property assessed value was used as a proxy for market value. Although there typically is a lag be- tween the two values, recent economic conditions have stalled housing appreciation. As a result, the assessed and market values are assumed to be consistent. The result of this effort provides the com- petitive supply pool used to determine affordability levels. To determine the potential demand for housing units within each of the affordability income groups, the Consultant used households by income data collected from DemographicsNow for each of the three Focus Areas. The households were broken down by age of head of householder in an effort to ac- count for differences in desirability for households at various points in their life cycle. It is important to note that limitations in the depth of data available make it impossible to filter the supply and demand pools to account solely for homebuyers and ownership units. For example, it is im- possible to know which household is a FHA buyer and which is a conventional buyer. Also, it is impossi- ble to know which housing unit is owner-occupied. Maintaining the entire supply and demand pool al- lows for a reasonable comparison of potential supply versus potential demand. To this end, the data presented in this analysis represent the ‘maximum’ supply and demand for each scenario. Despite this, the results do provide an understanding of the relative affordability of housing and the market com- petition any new development will have. Other assumptions used in the affordability analysis include:  All buyers seek to maximize their spending potential (based on income and equity position).  All households are considered potential buyers in both the FHA assumption category and the conventional assumption category.  All single-family housing units are considered potential ownership units.  Affordability bands were established to identify the relative supply and demand pools, rang- ing from 30% to 50% of AMI to 100% to 120% of AMI.  Persons earning below 30% AMI were assumed to not be eligible for homeownership.  Interest rates were collected from local lending institutions at the time of this analysis (August 2009).  The FHA-style mortgages require PMI, which was calculated using current (as of August 2009) rates.  Insurance rates were calculated using estimates provided by national insurance companies for the Primary Study Region in Chattanooga.  The Consultant used a debt-to-income ratio of 35% to calculate income requirements for a new mortgage to simulate the principal, interest, taxes and insurance (PITI) payment and an assumed level of monthly debt payments. 2. Affordability Analysis Results The market buying potential analysis indicates that the Eastside and Southside neighborhood Focus Ar- eas have higher concentrations of modest income households than the rest of the City. Approximately 40% of all households in the two Focus Areas earn less than 30% of the region’s AMI (Figure 6). Only 18% earn above 100% of AMI. There is a substantially lower share of households within the rest of Associates, Inc. Page 19
  20. 20. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 Figure 6 the City that earn less than 30% of Household Area Median Income Thresholds AMI (18%) and Study Neighborhoods & Rest of City substantially larger 2008 share that earn 90% above 100% AMI (38%). 80% 70% Furthermore, those households headed 60% by persons under 50% 35-years old and over 75-years old, 40% on average, have 30% lower incomes than 20% those households headed by persons 10% aged between 35 0% years and 75 years. This finding Above 30% Above 50% Above 80% Above 100% Above 120% is significant, as the AMI AMI AMI AMI AMI Eastside and South- side neighborhoods Eastside Southside Rest of City have higher concen- trations of younger Source: City of Chattanooga and RKG Associates, Inc., 2009 and older house- holds than the rest of the City; further indicating residents within the two Focus Areas are more susceptible to sub-prime lending practices. However, housing values within the two Focus Areas and the City as a whole are relatively affordable when compared to City households’ ability to pay. Households earning 50% of AMI seeking a FHA loan can afford a house priced at $91,775. According to the City’s property assessment database, approximately 90% of all single family housing units within the Eastside and Southside Focus Areas are valued below this price threshold. Conversely, less than 2% of housing units in the two Focus Areas are valued above $150,000 (Table 5). The relative affordability of housing is even higher under the conventional homebuyer assumptions, where corresponding housing values are higher for each income level due to the larger downpayment and no requirement for PMI (Table 6). The relative affordability of housing within the rest of the City is similar to the two Focus Areas. Although housing values are comparatively higher throughout the rest of the City, so are household incomes. Interviews with local real estate professionals and the Multiple Listing Service (MLS) data they provid- ed suggest housing values have declined throughout the City, making housing more affordable than property assessment data suggests. These respondents indicated that the average newly-constructed house within the Focus Areas sells for approximately $80,000 to $100,000 depending upon size and location. Older, existing units were reported to sell between $50,000 and $60,000 on average, well below the $91,775 threshold for households earning 50% of Chattanooga’s AMI. As mentioned earli- er in this analysis, MLS recorded sales for the Focus Areas averaged a sale-to-value ratio between 0.6 and 0.75. As such, affordability is not the key factor in finding and successfully attracting buyers into the Focus Areas. Associates, Inc. Page 20
  21. 21. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 3. Implications The analysis indicates housing in Chattanooga, and particularly in the Eastside and Southside Focus Ar- eas, is very affordable. The disparity between people’s ability to pay and the value of housing in the City-County indicates there is insufficient supply at the higher-end of housing pricing, generally above $150,000. As a result, some households are forced to seek housing that does not maximize their abili- ty to pay. The result of this situation has both positive and negative implications to attracting potential homebuyers through the Neighborhood Stabilization Program. On the positive side, there is a suffi- cient number of potential buyers within the local and regional market to counteract the impacts of the economic downturn and the high rate of foreclosures within the City and Focus Areas. On the negative side, those households that historically have shown the greatest interest in the Eastside and Southside Focus Areas often require more than an affordable, available dwelling unit to buy. Almost all local real estate professionals indicated it is common for households who typically seek homeownership op- portunities in these Focus Areas to have needs in areas such as downpayment assistance, credit coun- seling and homeownership preparation classes. Furthermore, the competition from other areas within Chattanooga but outside the Focus Areas provides consumers with alternatives. As such, any strategy to engage potential homebuyers to consider the Focus Areas will need to address quality of life and competitiveness issues in addition to affordability. Local real estate professionals indicated the issues of public safety and the provision of support services two of the greatest impediments to the Focus Ar- eas’ drawing power. Associates, Inc. Page 21
  22. 22. Chattanooga, TN – Residential Real Estate Market Analysis - DRAFT September 2009 Table 5 Housing Affordability Analysis Supply vs. Demand Data; FHA Homebuyers 30% to 50% AMI 50% to 80% of AMI 80% to 100% of AMI 100% to 120% of AMI Above 120% of AMI TOTALS Income Range $16,838 $28,063 $28,063 $44,900 $44,900 $56,125 $56,125 $67,350 $67,350 and Above $16,838 and Above Targeted House Values $25,000 $91,775 $91,775 $146,840 $146,840 $183,550 $183,550 $220,260 $220,260 and Above $25,000 and Above EASTSIDE STUDY AREA Total Supply 3,274 325 17 6 5 3,627 Total Demand 1,120 961 330 271 711 3,393 Diference 2,154 (636) (313) (265) (706) 234 Estimated Available Supply 196 20 1 0 0 218 Estimated Active Demand 85 57 32 26 18 218 Difference 111 (38) (31) (26) (18) (0) SOUTHSIDE STUDY AREA Total Supply 1,220 127 13 3 6 1,369 Total Demand 411 378 152 104 276 1,321 Diference 809 (251) (139) (101) (270) 48 Estimated Available Supply 73 8 1 0 0 82 Estimated Active Demand 33 22 13 9 7 84 Difference 40 (14) (12) (9) (7) (2) REST OF CHATTANOOGA Total Supply 17,248 17,980 6,856 3,567 7,659 53,310 Total Demand 8,525 11,692 6,540 4,907 18,318 49,982 Diference 8,723 6,288 316 (1,340) (10,659) 3,328 Estimated Available Supply 1,035 1,079 411 214 460 3,199 Estimated Active Demand 1,250 1,036 744 582 458 4,070 Difference (215) 43 (333) (368) 2 (871) Source: RKG Associates, Inc. 2009 Table 6 Housing Affordability Analysis Supply vs. Demand Data; Conventional Homebuyers 30% to 50% AMI 50% to 80% of AMI 80% to 100% of AMI 100% to 120% of AMI Above 120% of AMI TOTALS Income Range $16,838 $28,063 $28,063 $44,900 $44,900 $56,125 $56,125 $67,350 $67,350 and Above $16,838 and Above Targeted House Values $25,000 $133,960 $133,960 $214,336 $214,336 $267,920 $267,920 $321,504 $321,504 and Above $25,000 and Above EASTSIDE STUDY AREA Total Supply 0 3,588 0 33 0 3 0 0 0 3 0 3,627 Total Demand 0 1,120 0 961 0 330 0 271 0 711 0 3,393 Diference 0 2,468 0 (928) 0 (327) 0 (271) 0 (708) 0 234 Estimated Available Supply 215 0 2 0 0 0 0 0 0 0 218 Estimated Active Demand 85 0 57 0 32 0 26 0 18 0 218 Difference 130 0 (55) 0 (32) 0 (26) 0 (18) 0 (0) SOUTHSIDE STUDY AREA Total Supply 1,336 0 25 0 4 0 1 0 3 0 1,369 Total Demand 411 0 378 0 152 0 104 0 276 0 1,321 Diference 925 0 (353) 0 (148) 0 (103) 0 (273) 0 48 Estimated Available Supply 80 0 2 0 0 0 0 0 0 0 82 Estimated Active Demand 33 0 22 0 13 0 9 0 7 0 84 Difference 47 0 (21) 0 (13) 0 (9) 0 (7) 0 (2) REST OF CHATTANOOGA Total Supply 31,659 0 13,524 0 3,348 0 1,589 0 3,190 0 53,310 Total Demand 8,525 0 11,692 0 6,540 0 4,907 0 18,318 0 49,982 Diference 23,134 0 1,832 0 (3,192) 0 (3,318) 0 (15,128) 0 3,328 Estimated Available Supply 1,900 0 811 0 201 0 95 0 191 0 3,199 Estimated Active Demand 1,250 0 1,036 0 744 0 582 0 458 0 4,070 Difference 650 0 (225) 0 (543) 0 (487) 0 (267) 0 (871) Source: RKG Associates, Inc. 2009 Associates, Inc. Page 22

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