Ten years ago, the above assertions were true. I’ll also concede that downtown development is truly in its infancy. Most don’t realize that downtown residential development was forbidden by metro building codes from 1963 until 1993. Developers who would have otherwise built in downtown were forced to matriculate to the suburbs. It was not until then-Mayor Phil Bredeson created an incentivized urban redevelopment zone around the CBD that residential and retail development began in earnest. If it were not for the so called “Bredeson Box”, residential development in the urban core may still be non-existent. But Mayor Bredeson did kick start development and since 2000, public-private investments in new downtown development have exceeded $2.8 billion. There are 2 downtown grocery stores, 2 dry cleaners, 2 pharmacies, 5 museums, 4 dentists, 9 bakeries, 20 art galleries…and more retailers moving downtown every week. It’s hard to maintain an aversion to downtown Nashville when so much growth is taking place.

Downtown Nashville Residential and Retail Presentation

Note: The absolute numbers in this presentation are a moving target and subject to change. New residents and retailers are moving downtown every day. Big thank you to Tamara Dickson for the use of the Partnership’s presentation!

This is a post from Grant Hammond's Nashville Real Estate Blog.

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1. Remarkable Homes Predicts Residential Real Estate Future
2. Real Estate Market Trends in Nashville
3. New Proposed Hotel for Downtown Nashville

The financial magazine looked at cost of living (where Nashville ranked 3rd among cities with at least 100,000 residents), unemployment (Nashville ranked 23rd) and housing costs as a percentage of household income (Nashville ranked 11th).

The Forbes study surveyed all cities with MSA populations greater than 100,000. I usually hate polls like this because they seem to lack more than one aggregate fact, but when I Wikied the number of cities with a metropolitan statistical area greater than one hundred thousand, I found 342 and became a slight bit more optimistic for the future of Nashville.

Top Ten Most Affordable Cities in the United States

1) Oklahoma City: Cost of Living #12, Unemployment #4, Housing cost #2
2) Pittsburgh, PA: Cost of Living #6, Unemployment #15, Housing cost #1
3) Buffalo, NY: Cost of Living #16, Unemployment #9, Housing cost #3
4) Rochester, NY: Cost of Living #25, Unemployment #1, Housing cost #8
5) Nashville, TN: Cost of Living #3, Unemployment #23, Housing cost #11
6) San Antonio, TX: Cost of Living #19, Unemployment #9, Housing cost #10
7) Houston, TX: Cost of Living #7, Unemployment #22, Housing cost #13
8 ) Louisville, KY: Cost of Living #2, Unemployment #37, Housing cost #4
9) Birmingham, AL: Cost of Living #4, Unemployment #26, Housing cost #14
10) Austin, TX: Cost of Living #15, Unemployment #6, Housing cost #25

Does this Affect Nashville Real Estate Values?

I have long debated both myself and others on whether or not these overnight polls and studies truly possess any predictive value and I have come to one singular conclusion. By themselves, no. No matter the source. In aggregate, yes, especially when a mass public media collectively grabs hold of the headline and incessantly beat it in our subconscious. In the case of this Forbes study, that was not its fate, but I post here on my blog as a curiosity, and perhaps, a beginning of a trend.

This is a post from Grant Hammond's Nashville Real Estate Blog.

Related posts:

1. Forbes Ranks Nashville #3 City of the Future
2. Nashville Ranks High in 2009 Economic Studies
3. Harris Interactive Poll Ranks Nashville and Tennessee High

Second-quarter numbers are also up, with 6,831 closings reported, a 24.7 percent increase from the 5,478 closings reported through the second quarter of 2009. Year-to-date closings for the Greater Nashville area are up 19.3 percent with 11,023 compared to the 9,240 closings reported through mid-year 2009.

“The current home sales data for Greater Nashville and Middle Tennessee show encouraging signs for our market,” said GNAR President Lucy Smith. “For the ninth consecutive month we have seen an increase in home sales and every county saw home sales growth through mid-year. More good news is that Congress passed an extension of the Homebuyer Tax Credit closing deadline. This legislation gives many Middle Tennesseans an additional 90 days to complete their transactions. Originally, buyers under contract by April 30 needed to close by June 30 to qualify, but now have until Sept. 30 to close on their transactions. And, as interest rates remain remarkably low, now is a great time to explore the possibility of homeownership.”

A comparison of sales by category for June

                                      June 2009           June 2010
Total Closings              2,091                     2,416
Residential                   1,770                     1,980
Condominium              234                         354
Multi-Family                   21                           19
Farms/Land/Lots         66                            63

A comparison of sales by category for the second quarter

                                           Q2 2009              Q2 2010
Total Closings                  5,478                    6,831
Residential                       4,601                     5,732
Condominium                  642                        824
Multi-Family                       49                          58
Farms/Land/Lots             186                        217

A comparison of sales by category for mid-year

                                      Y-T-D 2009          Y-T-D 2010
Total Closings               9,240                     11,023
Residential                     7,750                     9,194
Condominium               1,088                      1,336
Multi-Family                     97                           109
Farms/Land/Lots           305                         384

The median residential price for a single-family home during June was $181,312, and for a condominium it was $145,000. Last year’s median residential and condominium prices for June were $177,700 and $152,870, respectively.

There were 1,976 sales pending at the end of June, compared with 2,141 pending sales at this time last year. The average number of days on the market for a single-family home was 83 days. Inventory at the end of June was 23,640, down slightly from 24,552 in June 2009.

Current inventory of properties compared to last year

                                      June 2009       June 2010
Inventory                          24,552             23,640
Residential                     15,035             14,775
Condominium                2,568                2,398
Multi-Family                      401                   395
Farms/Land/Lots            6,548               6,072

“Inventory is down slightly in all categories,” added Smith. “But, with a 10-month supply of homes, buyers still have plenty from which to choose. The Greater Nashville real estate market remains healthy and we are optimistic families and others will continue to make Middle Tennessee home.”

The Greater Nashville Association of REALTORS® is one of Middle Tennessee’s largest professional trade associations and serves as the primary voice for Nashville-area property owners. REALTOR® is a registered trademark that may be used only by real estate professionals who are members of the National Association of Realtors and subscribe to its strict code of ethics. ©Copyright 2007-2011 GNAR.

This is a post from Grant Hammond's Nashville Real Estate Blog.

Related posts:

1. November Report: Home Sales For Nashville
2. Home Prices Slide in Nashville Area
3. Nashville Real Estate Market Report for June 2009

Of course, you would be correct, but you’d also be misleading your readers.

If you were one of those gong ringing, forever pessimistic, ‘I need to sell some more papers before they eliminate more positions’ type of journalist, this is what you might spin this month: Nashville pending home sales plummet an astounding 15.2% in May. You may also write: As tax credit expires, so do immediate hopes of a Nashville real estate recovery.

Of course, you would be correct as well, but you’d also be telling half truths.

Certainly, there is a happy middle ground between both ‘fictional’ postulators, but the truth is, both are correct in their own respect. Let’s take each one and dissect their intent:

In the first fictional example, this real estate agent is pointing out the well corroborated fact that Nashville real estate closings climbed from 1,723 in May 2009 to 2,168 in May 2010. What he/she fails to mention in their headline is that this 25.8 percent increase is a year-over-year increase. This person more egregiously fails to mention that this increase is directly attributable to the conclusion of the federal tax credit the previous month. Moreover, this person also fails to mention that the month-to-month increase from April 2010 to May 2010 is only 5.5 percent, which is below the majority of accepted estimates. Shame, shame fictitious person. You are a capitalist who is attempting to augment your income by creating optimism and selling more homes.

In the second fictional example, this journalist is musing about the same phenomenon, but from the other side of the coin. Naturally, in the months leading up to the conclusion of the federal tax credit, more and more buyers executed purchase contracts. These are buyers who are most likely pushing up their purchases in order to remain eligible for the $8,000 from Uncle Sam. Once our generous uncle retracted his $8,000 offer, there was no reason to push a purchase up in time and the market returned to its normal state. So, did pending sales fall 15.2% in Nashville? Yes, they did. They fell from a 21-month high of 2,505 pending home sales to 2,124. Shame, shame fictitious person, you are a capitalist who is attempting to augment your income by creating fear through sensationalism and selling more papers.

Closed Real Estate Sales                                             Pending Real Estate Sales

Is there any Truth in Real Estate?

There is, but only if you block out all of the noise. You need to consider long term trends instead of micro-analyzing the short term phenomenon. Once you understand the trend, you can then use microanalysis as one of many tools to determine whether or not this is a good time for you to buy or sell real estate.

Who here did not expect home sales to dramatically increase in the months leading up to the end of the federal tax credit? Especially when compared to last year’s home sales numbers? Of course you did. You understand that this was a stimulus program intended to create just such an effect.

Who here did not expect home sales to drop off after the tax credit ended? All rational people expected this to happen. There is no surprise. This is not headline worthy news, at least, not yet. Time needs to pass before we can draw any concrete conclusions about the effectiveness of this last housing tax credit.

Trust in long term Nashville real estate trends

8 year pending vs. sold analysis                        Past 24 months pending vs. sold

Of course, who cares about the velocity of sales, you just want to know about prices. Did you catch my research on Nashville home prices?

This is a post from Grant Hammond's Nashville Real Estate Blog.

Related posts:

1. August 2009 Nashville Real Estate Market Analysis
2. Nashville Real Estate Market Analysis – July 2009
3. Don’t Believe the Nashville Real Estate Hype…Yet

This weighted average mean price compared with volume of sales study of the local Nashville real estate market is one of my favorite charts. If you believe that the volume of closed transactions is an accurate leading indicator for price, as I do, you will see that the Nashville market is most likely entering into a sideways period for the next 12 months. Based upon an 18 month lead variable, it does appear that home prices in the Nashville market will officially recover in May of 2011. This will be the point at which one can say home prices in Nashville are now appreciating on the whole. However, let me caution buyers, if you try to time the bottom, you’ll almost always miss it.

Timing the Bottom of the Nashville Market

Should the national economic landscape not change in some drastic way, from this point forward, you should assume that the average Nashville property is at or near its bottom price. Keep in mind that we are speaking in averages, there are micro markets within Nashville that will continue to depreciate and markets that continue to appreciate independent of the average. If you are attempting to time the bottom of the market, now is the time to truly put forth effort in identifying submarket value deals. My advice is to plan on consummating your purchase prior to the end of this year. Perhaps, our traditional market doldrums of the Thanksgiving season might be the optimal convergence of seller depression and average price lows. That being said, should you identify a property that is currently under market value, do not delay long as a growing number of savvy buyers are beginning to exit their perches on the fence.

Volume of Real Estate Sales in Nashville

It is already clear from April’s numbers that the closing volume will be significantly higher in Q2 2010 than it was in Q2 2009. Granted, this is mostly an artificial result created by the federal real estate tax credit, but that point is entirely moot in this analysis. Provided that no new real estate stimulus programs be created in the near future, the Nashville market should experience its usual Q3 and Q4 volume declines and return to a very steady market in 2011. Nashville will continue to see modest gains in transactional volume throughout 2011, leading to modest gains in the average home pricing.

Predicting Median Prices of Nashville Real Estate

All of you day traders probably saw this trend immediately upon glancing at the above chart: you saw the bull run on prices from the middle of 2007 through the middle of 2008 while there was a very bearish volume of transactions. This was the period in Nashville before we really felt the “what, me too?” effect of the national housing crisis. Directly after that period, Nashville experienced a year of almost geometric price decline that began to temper just 12 months ago. This period of price decline almost perfectly mirrors the price increase realized in the 2005 period. Since that decline, prices in Nashville have remained virtually flat. I would expect this relatively flat, or even slightly declining period to continue through the remainder of 2010.

By the beginning of 2011, the market will begin to feel a lot like it did in 2003 – 2004 on a volume consistent with 2002 – 2003 (think of a reverse climb back up the same moving average trend line). Prices in the more desirable areas of Nashville will begin to appreciate as much as 5% per annum and even the least desirable areas will experience price stabilization to a certain extent. By the end of 2011, most city leaders, bankers, prognosticators and soap box salesmen will proudly declare an end to the economic downturn, but they will be early in that declaration. The economy still has a ways to go at this point, but the consumer confidence factor will have returned to the residential real estate market in Nashville. It will be during 2011 that Realtors will be able to say that their 4.5 year trip down the rabbit hole has finally ended.

This is a post from Grant Hammond's Nashville Real Estate Blog.

Related posts:

1. Warren Buffett Predicts End of Housing Crisis
2. Brentwood Homes Price Value Analysis
3. Nashville Housing Market Turning Corner?

Total Inventory (Okay, Increasing)
Inventory levels continued to build in April, up 1.47 percent from March, up 11.28 percent since January 2010. There were a total of 17,705 active homes and condos listed in Nashville last month, compared to April 2009 when there were 17,430 on the market, a modest year over year increase of 1.55 percent. Interestingly, despite this year over year increase, the 2010 adjusted average monthly inventory is still lower than both 2009 and 2008 levels.

Pending Sales (Excellent, Inflated)
Pending sales in Nashville are up sharply in the first 4 months of 2010. Since January, pending sales have nearly doubled, soaring 193.43 percent higher. Additionally, total pending sales are 34.31% higher than their levels a year ago. In fact, the current 2,505 pending sales is the highest total in any month since June 2008 when there were 2,684 pending sales. This is not surprising news. The end of April coincided with the end of the federal $8,000 tax credit for first-time home buyers pushing a number of sales into April that would have normally occurred later in the summer. One must take some fraction of these sales and attribute them forward in an effort to annualize the data for a more accurate prediction of the coming months.

Closed Sales (Very Good, Inflated)
Just as with pending sales, the number of residential closings in Nashville has risen rather significantly. Since January, closings have more than doubled, increasing 208.52 percent. April’s total also represents a 16.9 percent increase over March. Compared to the same period in 2008, year over year closings have increased 35.49 percent when 1,516 properties closed. In addition, we have narrowed the gap over 2006 by another 6.11 percent during the past month. Again, let me caution you, these numbers have been inflated by the tax credit. Fascinatingly, April’s total closings are almost exactly the same as October 2009, the month prior to conclusion of the previous federal tax credit for first-time buyers. It is too early to compare the effect of each tax credit on Nashville sales, as the current tax credit concluded during a more advantageous time in our natural market cycle. Once an annualized analysis can be completed, I anticipate the ability to calculate the net effect of each tax credit.

Median Prices (Upward Trending, Stabilized)
April experienced the first month over month price increase since December 2009. Increasing 3.78 percent to $162,701, the median price in Nashville is now roughly equivalent to prices from a year ago. Compared to April 2009, the median price remained virtually identical, only falling 0.04 percent from $162,766. Furthermore, the current median price is only 0.0137 percent lower than the 12 month average median price for 2009. This evidence points towards a complete price stabilization in the Nashville market; however, it is still too early to tell whether the current tax credit has skewed the relative median price in a meaningful way or we have reached true stabilization.

Months of Inventory (Compressing)
Based on April’s closed sales, Nashville has 8.62 months of inventory currently on the market. Based on pending sales (contracts accepted but not closed yet) Nashville has only 7.07 months. The absorption rate has been significantly better over the past 3 months when there was 15.9 months of inventory based upon the same calculations – a 184.45 percent absorption rate increase. Do not let this rate increase fool you. Since 2003, the Nashville market has experienced a very similar 143.71 percent absorption increase over this same period annually.

Pragmatic Conclusions
As I begin to take seasonality into account, I am seeing that the first half of 2010 is shaping up to be quite similar to the second half of 2009. Yes, total closings and pending sales have risen sharply. Yes, the median price has increased, but the graph clearly indicates that the overall market levels are remarkably close to the same levels experienced towards the end of last year’s tax credit. The only appreciable difference is how quickly the 2010 numbers have risen. This dramatic rise is a simple combination of the Nashville housing market’s traditional seasonal gains plus some factor attributed to the conclusion of the current federal tax credit. Once adjusted, I anticipate being able to prove that the market has actually behaved in a slightly upward sloping linear manner. In other words, I should be able to mathematically prove that the Nashville real estate market has either begun to bottom out or has, in fact, bottomed out. Whether the market begins an appreciating cycle or is in for a double dip depends upon too many factors to list in this brief analysis.

Prediction
Many publications and periodicals will sensationalize the increasing volume of bank foreclosures and conclude that this increasing volume will have a negative effect on prices. This does not appear to be an accurate conclusion. Studies have shown that foreclosures have more than tripled in the Nashville market over the past 24 months and yet, the median price has still stabilized. So, what is the true difference between a bank selling at a stabilized lower price and a distressed homeowner doing the same? Not a whole lot from the market’s perspective.

This is a post from Grant Hammond's Nashville Real Estate Blog.

Related posts:

1. October 2009 Nashville Real Estate Market Analysis
2. August 2009 Nashville Real Estate Market Analysis
3. Nashville Real Estate Market Analysis – July 2009

According to the Brookings Institute’s One-Year Review after Hurricane Katrina, “Housing is less affordable as rent prices in the region have increased by 39 percent over the year and home sale prices have spiked in suburban parishes.” Specifically, the Brookings Institution concluded that, “Home prices, measured by their purchase price, have increased in East St. Tammany and West Jefferson, by 6 percent and 23 percent, respectively since last August. Coupled with the healthy pace of home buying, it is evident that these suburban areas have become the favored quarter for households. Home prices have not increased in the most damaged parts of the metro area…rents have also increased for the region as a whole since last August. A two-bedroom apartment now rents for an average of $940 a month, an increase of 39 percent since last year. Rents for all other apartment sizes have risen at the same pace.”

It is difficult to correlate the above statement directly with Nashville, but if recent history is any lesson, I would expect home prices to fall significantly in the most affected areas of Nashville like the Pennington Bend area near Opryland and the River Plantation and Riverwalk areas of Bellevue. However, there are several large rental complexes very near those areas that may allow displaced residents to temporarily remain close to home. This is an important fact, since the further loss of consumer spending in those specific areas would magnify the loss in real estate prices through population attrition.

Which Areas of Nashville will Benefit

If I had to make an educated guess, I would say that the slightly more affordable areas just outside of Bellevue, but on the Nashville side of town will benefit from the flood. West Meade, Northwestern Brentwood and Northern Franklin may see a marked increase in housing purchase demand while Eastern Bellevue, Green Hills, Hillwood and West End may see an increase in rental demand. Unquestionably, downtown Nashville itself as well as the Cool Springs area will experience higher than usual demand as displaced persons attempt to secure a rental or permanent residence closer to where they work.

According to the Wall Street Journal, another interesting phenomenon post Hurricane Katrina, was the insurgence of interest from real estate speculators. In doing research for this story, there actually appears to be a pattern of real estate investing by professionals in areas that have suffered significant housing loss. If one can secure an undamaged property for some percentage less than just prior to the weather event, there is almost certain profit through a resale or long term rental strategy.

Differences Between Katrina and the Nashville Flood

There are a few major differences of note between Hurricane Katrina and what is becoming known as “the great 500 year flood of Nashville”. The most obvious is that Katrina caused a much larger population displacement, the hurricane actually pushed hundreds of thousands of New Orleans residents out of the State of Louisiana. This is a very important difference. New Orleans lost all benefit of those residents’ consumer spending. This is not the case in Nashville where displaced persons are finding places to stay within the greater Nashville area.

Hurricane Katrina was a wind event as well as a flood event whereas the Nashville flood is a simple flood event. This is another important distinction as we have not experienced a proportionate number of power lines down, roofs ripped off or general destruction that is associated with wind events. This will lead to the faster restoration of public utilities and allow reconstruction to begin much, much faster.

Nashville Real Estate Outlook

It is true that Nashville is in the beginning stages of scratching and clawing its way out of the national economic downtown. It is also true that jobs and general optimism had also begun to return to this area. For the supporting reasons above, I am predicting that the resulting economic impact from the flood will cause the Nashville real estate market to recover faster than if the flood had not occurred. The storm has caused the total inventory of homes to decrease more than the resulting demand. While this affect many only last 6-12 months, it may seamlessly blend into a recovering national economy.

This is a post from Grant Hammond's Nashville Real Estate Blog.

Related posts:

1. Zillow Reports Nashville Market Gains Value
2. August 2009 Nashville Real Estate Market Analysis
3. Nashville Real Estate Market Forecast for 2010

Most real estate professionals would agree

Don’t be Foolish!

History is a great professor and it’s time to go back to class. Yes, March 2010 closing are 20.6% higher than those of 2009, but they are also still 16.3% lower than in 2008, a recessionary year, which did not see any government incentive induced real estate sales. Yes, it is also true that we have seen 6 straight months of year over year gains in closings, but the first-time buyer credit concludes at the end of April with little indication that the program will be extended. At one point during this run, year over of year sales were trending 59% above the previous year’s, it is no coincidence that this spike directly coincided with the end of the government’s initial first-time buyer credit program. I suspect that we’ll see this same phenomena repeated this Spring.

Click image to Enlarge

April 2010 Closed Homes Prediction for Nashville

I am going to go out on a limb and make a prediction that I am going to guarantee. The number of closings in April 2010 will exceed those of 2008. In March of 2010 there were 1,757 closings, April of 2008 recorded 1,994. I am predicting that the Nashville market will experience at minimum another 13.5% month over month increase in the number of closings or 237 more closings. This increase in sales is so closely tied to the first-time buyer credit that I will also make another bold prediction. Should the government not extend the credit for a third time or reestablish a mortgage backed securities buying program, by August 2010, closings will back below 10 year lows. The dotted green line represents that probability based upon an extrapolation of combined inventory predictions and fixed 30 year mortgage rates.

Click image to Enlarge

Take-Away Points for Buyers and Sellers

• If you are a seller who has received a reasonable offer for your home or condo, negotiate judiciously then take the money and run.
• If you are a buyer who is in the market for a steal, wait. Unless your buying power is dependent upon the today’s mortgage rate, wait.
• If you are a cash buyer for an individual home or condo, your day has not yet come. Wait until the end of Summer and you are guaranteed to rip a seller’s heart out by their wallet.
• If you are a casual seller who is only trying to sell your property in order to be able to take advantage of a distressed seller, stock up on patience. However, the best homes do sell, so make your property the best it can be.

This is a post from Grant Hammond's Nashville Real Estate Blog.

Related posts:

1. October 2009 Nashville Real Estate Market Analysis
2. April 2010 Nashville Real Estate Market Analysis
3. August 2009 Nashville Real Estate Market Analysis

I suppose I shouldn’t be surprised by the overreaction to good news in the real estate community, but I am a little surprised that the Nashville news media has jumped onto the bandwagon so quickly. Looking at just last year’s numbers, you’ll quickly see that Nashville really isn’t too much better or worse off than it was 12 months ago with the exception of pending sales. In January 2009 only 924 homes and condos closed during the month, the lowest number since 1994. In January of 2010 an astounding 985 homes and condos closed (yes, I know this is dripping with sarcasm), the second time in 16 years the total number of sales dipped below 1,000 total closings for the month. The year over year increase of 6.6% is hardly a solid foundation on which to build a housing recovery argument.

More bad news is that since December 2009, market inventories have been increasing at surprising rates, 14.2% in just over 2 months. Clearly, the decreased absorption rate during this period is disappointing, but the trend reversal is the more distressing item for me. During the same period in 2008-2009, Nashville inventory levels only rose 8.56%.

To add further insult to injury, the 2010 February over January inventory levels have increased 5.47% whereas those levels only increased 3.10% in 2009.

Okay Mr. Sourpuss, What About the 25.08% Increase in Real Estate Closings?

I agree that a 25.08% February over January closing increase is substantial and not to be ignored; however, a year ago this same period saw a 31.39% month over month increase in closings. This is a market trend that has repeated itself 10 out of the past 10 years and thus, I am discounting its significance.

The Bright Side of the Nashville Rainbow

Pending sales, ah pending sales, how I love thee. The month over month increase of 24.63% represents the single largest increase in pending sales since March of 2005. This is significant in that pending sales are a pure indicator of future closings and future closings directly lead to inventory reduction (in a balanced market). Could this renewed activity be a result of the tax credit or perhaps pent up demand finally being released? Yes, but neither I nor anyone else is going to be able to tell you the mixture until much further down the road. By comparison, in 2009 pending sales only increased by 13.26% in the first month of the year.

What Other Real Estate Agents are not Saying

The Nashville real estate market is still a buyer’s market. If you are a seller who has to sell this year, I’m sorry, but your home is not worth what you think it’s worth. In fact, the current median price of $159,900 is exactly what it was in May of 2005. Yes, I said it. Your house, according to the open market, is worth what it was 5 years ago. Of course, there are several exceptions in the more desirable areas of Nashville, but if I had to ballpark the Davidson home sales trend, this is what the numbers say. In the same breath, only the best homes (cleanest, renovated, biggest deals, distressed, etc) are the homes that are even receiving offers. In case I have not applied enough force to the above kick in the pants, you have to go back to 2001 to find the total number of monthly closing near 1,232 (excluding the past 15 months).

We’re Always 12 Months Behind in Nashville

The above title sounds like a bad thing, but in this case, it is not. Because Nashville real estate values continued to rise 12 months past more than 70% of the nation’s we have been able to cushion the overwhelming pessimism that has permeated their real estate markets. In other words, the rest of the country feels pretty good about Nashville and I am seeing signs of their money being spent on our city’s real estate. This action will inevitably lead to more local money being spent on our real estate and will lead to a faster exit from real estate valuation prison, a place we have only really been in for a year. I hate to repeat it, but “a rising tide lifts all ships.”

Call me Crazy

The Nashville market will not stay a buyer’s market for more than the next 14 months. Yes, you just finished reading my written tongue lashing of the current market, but we do only have 13.6 months of inventory on the market and new construction has slowed 61.24% in just the past year. There is still a looming shadow inventory out there as well, but looking at Nashville’s job predictions + stable wage growth + current investment minus over 60% of the new residential construction and, well, you get my drift. As long as the 30 year fixed mortgage rate stays below 6.125%, we’re looking at a pretty nice little market by 2012-13.

Buy soon, buy BELOW current market values, buy desirable property in desirable areas and REAP the benefits by 2013. Go reap!

BTW – sellers listen to me here. If you sell your house at what you consider to be a 10% loss and then go purchase a distressed sale at a 25% discount, you are still increasing your equity by 15%. DO NOT be afraid to sell your house for a little less that you would like if you can replace it with a killer deal. Go ask a stock trader if they would have liked to have sold their Toyota stock 3 months ago and replaced it with Ford.

This is a post from Grant Hammond's Nashville Real Estate Blog.

Related posts:

1. Nashville Real Estate Market Analysis – July 2009
2. August 2009 Nashville Real Estate Market Analysis
3. October 2009 Nashville Real Estate Market Analysis

I’d like to say that this statement is comforting, but as I analyzed the exact meaning, I became a little more skeptical. Let’s suppose we take the above quote as most housing industry participants are and run with the positive side first: It’s somehow comforting that Warren Buffett has predicted the end of the housing crisis and we now have a date to look forward to as the time we exist the dark housing tunnel. It’s also comforting to know that enough buyers will be back in the market that properties won’t languish in perpetual purgatory while housing demand continues to build.

Let’s now take Warren Buffett’s quote and look at it from the new skeptical and cynical point of view that has now become the initial response to any real estate or financial news: There appears to be another 12 months of real estate inequity that would seem to point to continued falling prices. This in the face of a federal housing credit program ending, banks continuing to foreclose at breakneck paces, measurable unemployment near 10% and a general public who feels defeated by their homes. How’s that for a counterpoint?

The Truth is Somewhere In-Between

As I have said for more than 2 years now, the national housing market can have nothing to do with your local market other than to wear on your psyche during the 6 o’clock news. That being said, where the real national effects are truly felt is at your local bank or credit union that is now unable or simply unwilling to take the risk of writing a new residential loan on a certain product type or in a certain part of your town. In Nashville’s case, this selective lending practice was clearly discriminating against the condo market. There was a period of 14 months when several local and region lenders would write a new purchase loan on a condo, but would also raise their rates in order to “cover their risk” of lending on what they considered to be a volatile real estate product. They called it a “condo rate hit”.

Fast forward to 2010 and most of these lenders have dropped their “condo rate hit”. In fact, one lender, Bank of America, appears to be giving below market rates to new condo purchasers in an effort to gain lost market share after a period of selective lending. When I ask a couple of originators what had changed in the past year, there really wasn’t a uniform response until I spoke to an underwriter who has processed loans for more than two decades. She stated that since condo inventory in Nashville had burned off rapidly in 2008 and 2009 coupled with very little new construction that her bank felt like the period of mass oversupply had ended. This sounds a whole lot like what Warren Buffett just said, doesn’t it?

The Nashville Real Estate Market Moving Forward

There is no reason to fear the Nashville real estate market as a buyer, but only if you are being smart about it. You should consider all types of properties, both distressed and non-distressed and not jump on the first deal you see. You can still overpay for a foreclosure or short sale. You should also consider the fact that not all sellers are distressed or have to sell their properties. Less than 18% of homeowners in Nashville are underwater and most are just like you, well capitalized and smart. Don’t badger these folks, but don’t hold back any punches either. Be swift, but respectful with your offers that are testing the waters.

Consider the fact that the Nashville market did not take the massive hit that other markets did, mostly because we did not receive the massive run up either. Banks, lenders, builders and distressed sellers still offer the greatest potential for a phenomenal deal, but those deals are not like the ones you read about in Florida or Las Vegas so be realistic. Do your market analysis and buy at a price level that beats the 5 year average.

This is a post from Grant Hammond's Nashville Real Estate Blog.

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1. NAR Predicts Slight Drop in Home Prices
2. Nashville Housing Market Turning Corner?
3. Remarkable Homes Predicts Residential Real Estate Future