Nashville Real Estate Market Forecast for 2010

The Nashville housing market will experience an accelerated sales volume in 2010 aided by the government’s extension and expansion of the first time home buyers federal tax credit, more government-backed lending assistance, and historically low according to 90% of major forecasts for 2010.

Surrounding real estate markets will improve in the Southeastern U.S. with average housing deflation forecasted at 8.4% regionally. This figure represents the lowest amount of deflation on an annual basis in the past four years (actual price deflation over the past 4 years never reached the predicted decline). Nashville will only feel an estimated 5.2% of deflation overall with the hardest hit sectors being the luxury homes market over $600,000 and developer owned .

Reported unemployment peaked at 10.2% nationally, a number that has not been reached since the Great Depression. Most economists believe an economic recovery has begun, but with a suppressed job recovery anticipated, real estate will continue to experience price decline. Nashville will certainly see prices fall, but total sales and sales volume will increase in 2010. This phenomenon is commonly know by the phrase “inventory burn off”.

Ongoing banking troubles will contribute to added price deflation and spur additional foreclosures in Nashville which will have to be absorbed by new buyers before the real estate market fully stabilizes. This will cause the Nashville housing market to drag towards price stabilization which will not be achieved until late 2010 or early 2011. Momentum should gain strength in the second half of the year with expected improvements in and improved availability of credit.

Faster than average employment growth will boost the Nashville housing market which has been slowly working through a recovery phase. Unemployment or underemployment is the single largest factor for a full economic recovery in Nashville. However, potential super-projects like the new Nashville convention center and Medical Trade Center would alleviate these concerns and lead to a faster recovery despite any future tax implications.

The downtown Nashville condo market will continue to gain sales momentum as the second half of 2009 sales almost doubled those of the first half. Condo contributed to a renewed interest in the downtown market and effectively lowered prices to a level last seen in early 2006. I expect a 12% price decrease in developer owned condos as remaining inventory is absorbed, but for existing resales to only fall by just over half that amount.

Someone will purchase the befuddled project as well as the development and reintroduce both to the marketplace. The 5th & Main condos will most likely be available for resale at some discounted price and the Rolling Mill Hill condos will most likely go the rental route, perhaps workforce housing. Neither will have much trouble once the price for each have been reset.

The word “inflation” will become the new buzz word instead of “foreclosure” by the end of 2010.

Nashville Ranks High in 2009 Economic Studies

There is little debate that Nashville and Tennessee consistently rank atop many economic ranking lists and studies. The last 2 months of 2009 provide no exception with Nashville again being named to several prestigious “best in the United States” lists:

nashville ranks high for real estate

December 2009 – MarketWatch
Nashville Ranked as One of the Best Cities for Business

Nashville ranked 15th as one of the best U.S. metro for business in the MarketWatch’s 3rd annual survey.

Notable cities ranked ahead of Nashville: Des Moines (1), Boston (5), Denver (7), Dallas (9), Houston (11)
Notable cities ranked behind Nashville: Austin (17), Pittsburgh (23), Memphis (30), Atlanta (35), Chattanooga (38)

December 2009 – Forbes Magazine
Nashville One of America’s Fastest Recovering Cities

Nashville ranked 19th as one of America’s Fastest Recovering Cities based on diversified industries and relatively stable housing that give residents a measure of economic security.

Notable cities ranked ahead of Nashville: Raleigh (1), Lincoln (5), Des Moines (7), Austin (8), Huntsville (15)
Notable cities ranked behind Nashville: Charlotte (20), Atlanta (24), Houston (28), Dallas (32), Mobile (60), Birmingham (66)

November  – Black Enterprise
10 Best Cities for African Americans

Nashville ranked 6th as one of the Best Cities for African Americans based on high-paying jobs, affordable homes, a vibrant social life and short commutes. The 2009 ranking offers some major changes and repositioning in comparison to their 2001 and 2004 lists. Five cities found on both lists remain: Atlanta; Charlotte; Dallas; Houston; and the Washington, D.C. metropolitan area. Nashville, Tennessee, and Columbus, represent returnees from their 2004 roster. Three cities failed to make the cut this time around: Birmingham which received a low response from its residents, and Baltimore and Memphis, which were knocked out of contention because of residents’ great dissatisfaction with several key living standards.

Notable cities ranked ahead of Nashville: Jacksonville (1), Charlotte (4), Dallas (5)
Notable cities ranked behind Nashville: Houston (7), Atlanta (9), Washington DC (10)

November 2009 – Site Selection Magazine
Tennessee Ranks #5 for Business Climate

Tennessee ranked as the fifth-best state in the country to do business, according to an annual listing by Site Selection magazine. Tennessee has been ranked in the top five for five of the past seven years. The annual business climate rankings are determined by two factors: 50% by the state’s economic performance in Conway Data’s New Plant Database, which tracks new and expanded business facility activity, and 50% from surveys of corporate site selectors nationwide.

States ranked ahead of Tennessee: North Carolina (1), Texas (2), Virginia (3), Ohio (4)
States ranked behind Tennessee: South Carolina (6), Alabama (7), Georgia (8), Kentucky (10), Mississippi (17)

Nashville Mortgage Rates Begin to Rise

nashville mortgage ratesNashville long-term mortgages moved closer to 5 percent this week, with interest on 30-year, fixed loans averaging 4.94 percent compared to 4.81 percent last week and 5.19 percent a year ago. Freddie Mac also reports hikes for 15-year, fixed mortgages, five-year adjustable-rate mortgages, and one-year adjustable rate mortgages. The 15-year, fixed rate rose to 4.38 percent from 4.32 percent; the five-year adjustable rate mortgage climbed to 4.37 percent from 4.26 percent; and the one-year ARM jumped to 4.34 percent from 4.24 percent.

Most professionals in the mortgage industry agree that Nashville mortgage rates will begin a slow, but steady rise to the 6 percent range within the next 18 months as the Treasury begins to hedge against inflation. Mortgage professionals also predict a loosening in mortgage qualification over the same period.

For questions about mortgage rates or your current mortgage, email to get expert advice from Wells Fargo Nashville.

12 Days of Christmas Song Foreclosure Style

Well, all I can say is that it is sort of true, but certainly funny and sadly relevant. Merry Christmas and enjoy a little twisted humor! (does have sound)

Mortgage Interest Rates Move Higher

Mortgage interest rates on 30-year fixed mortgages rose to 4.81 percent last week, after the prior week’s fall to a record low of 4.71 percent, reports Freddie Mac.

While the Federal Reserve’s effort to purchase $1.25 trillion in mortgage-backed securities issued by Fannie, Freddie, and Ginnie Mae has helped keep rates attractive, Freddie Mac chief economist Frank Nothaft says interest rates rose because a favorable unemployment report pushed long-term bond yields up slightly.

With the Fed program projected to end in March, the Mortgage Bankers Association forecast in October that 30-year fixed mortgages will rise to 5.4 percent next year, increase to 6 percent in 2011, and hit 6.3 percent in 2012. Clearly, this would be a great time to refinance your mortgage, if your lender will let you.

mortgage interest rates projections

Nashville Condo Market Debate Continues

Recently, an educated rebuttal was posted on my 5 year condo analysis article. This rebuttal had some great points that I have posted in their entirety below. My answers/thoughts follow each point in blue.

“An interesting analysis, but I respectfully disagree with your conclusion that now is the best time to buy a condo in Nashville. I believe prices will continue to decline for the following reasons:

1. The market for condos, generally, is considerably smaller than the market for other housing. This is indeed true – the Nashville condo market has averaged between 16-17% of the market for homes over the past 3 years.

2. Most people who really want a condo have already bought one. There is not a way to prove this assertion. I tend to disagree from the experience of working with dozens of potential buyers who are still holding off on a purchase in an effort to time the bottom of the market. There is a lot of capital that is waiting to go back to work and the condo market will benefit as will the single family home market.

3. The expectation, as evidenced by your own survey (79 out of 100 not affiliated with the real estate industry think the condo market is about to crash) that prices will drop further. These folks are your buyers; do you think they’re going to buy now if they think prices will drop further? I don’t. This is incorrect. I polled everyone from grocery store clerks to the EVP of the Bank of Nashville. I purposefully did not poll any buyers or sellers of real estate as their opinions are obvious.

4. The oversupply of condos, both in the Gulch and elsewhere, e.g., 5th & Main and Rolling Mills, among others. I agree that there is currently an oversupply of condos in downtown, but that is only a small portion of the Nashville condo market. I have also agreed that developments with excess developer owned inventory will experience price decreases as they sell off their excess inventory. These projects also happen to be some of the most expensive condos in the city and will look disproportionately overpriced.

5. Tighter credit conditions and more stringent underwriting requirements. The tighter credit restrictions and more stringent underwriting requirements actually help the condo market by not allowing unqualified buyers to flood the marketplace. This is a welcomed change that was longer overdue. In the same breath, as soon as lenders and banks begin to feel their oats, these restrictions will ease again (probably about the time that the Nashville condo market is underserved by a lack of new construction and inventory).

6. Higher interest rates at the slightest hint of inflation. You and I both know that the Obama administration will continue to artificially hold interest rates down long enough to burn through our excess inventory in downtown. I don’t agree with this policy, but it is and will continue to happen.

7. The expiration, in April 2010 (unless extended), of government incentives. This will mostly only affect the first time buyer market. The end of this program also coincides with the beginning of our typical “real estate buying season”. Should the national foreclosure epidemic not be near a conclusion, look for the Obama administration to continue with this program or create a new way to prop up the US real estate market.

8. The universal expectation, and likelihood, that taxes will increase. Insignificant. This is a scare tactic that is not relevant to the Nashville condo market. In fact, most appraisers are predicting lowering these condos’ tax assessed prices which will lead to lower taxes.

9. The uncertain, dare I say unstable, economy. Only affects those who feel that their job, stocks or retirement funds are in jeopardy. Most economist agree that the US exited a recession some number of months ago. This morning Greenspan predicted that joblessness would fall to 8.3% by the end of next year – a nearly 2% drop from current levels.

10.The fact that it’s cheaper to rent comparable housing than buy it. Depends on how much money you put down, doesn’t it? Also presumes that you are not looking at interest write offs, future value of that money spent, available tax credits for new purchases or the possibility of future appreciation. If you are only considering the next 12 months, you are correct. If you are looking at a longer time horizon, I believe that you are not.

11.The public’s lack of faith in government and its ability to get us out of this mess. Again, insignificant. I don’t buy into any conspiracy theories in this age of information. It is not up to the government to get us out of this mess, it is up to individuals. If you are waiting for gov’t to swoop in and solve all of your problems, you are in the wrong country. Private business has always been a much larger contributor to the bottom line of individual American economic security.

12.The lowered appraisals of condos once the Terrazzo and West End closings occur. This is both true and not true. Each individual building does not wholly affect another even though it might be right next door. If this were true, then the two recent short sales in the Bristol on Broadway would have disallowed the 3 more than $400/ft sales at the Adelicia. That being said the liquidation sales at the Terrazzo and the West End will slightly lower the expected resale prices at other condo developments. Most everyone understands that a 1 day liquidation sales are not the same as a typical sale. If you were to sell all 100 of your Rolex watches in 1 day, you would not get as much as you would if you sold 1 each day for 100 days.

13.The refusal of condo developers to recognize current market conditions. This action is actually artificially propping up prices, but is slowing down sales. Think about it, these developers are paying the carry on a vacant condo instead of liquidating into market. This practice is keeping prices and inventory levels higher.

I could go on, but I’ll stop there. I should say I’m not associated with the real estate industry in any way, but I think I understand how markets work. I own my home, two condos (in Florida), the building where my business is housed, and a vacant lot at a Center Hill development (which I paid too much for-I bought it at the top of the market, in the spring of 2008). In May of this year, I paid $217 PSF cash for a 1,230 SF 2-bedroom developer closeout 17thfloor condo (in a 24-story building) with a large deck and beautiful view of the Gulf at Miramar Beach, FL (adjacent to Destin). Yet, here in Nashville, except for Terrazzo, developers are pricing units, some no larger than a standard hotel room, at $300 PSF or higher. I looked into buying at the Terrazzo auction and was close to bidding before the developer stopped the auction when prices were rapidly declining. So what does Terrazzo do? They advertise auction pricing, but are pricing units near the average price of the units they allowed to sell. To my mind, that’s not auction pricing. Auction pricing is when you sell all the units you advertise and take into account whether the latter units sell at a higher or lower price than the earlier units. I inquired whether the “auction prices” were negotiable and was informed they were not, so I didn’t bother to make an offer, although I am interested in a unit there. I shouldn’t pick on Terrazzo, however, because my experience with Icon was even worse. The units there were smaller and far less upscale than Terrazzo, but the developer wasn’t interested in selling anything for under $275 PSF. I enjoy your blog, but I’ll wait until interest rates rise and developer’s “get real” before I try to buy a condo in the Gulch. Only time will tell who’s right.

I am surprised to read that you bought a vacation condo in Destin and think that is a better investment than buying in a city that has a year round economy. Comparing $217 a foot in Destin to $300 a foot in Nashville would be like me comparing your $217 a foot in Destin to the $64 a foot in Gulf Shores for a brand new high-rise beachfront development. Different markets completely, but similar in that those two locations are vacation homes in a vacation driven market with virtually no other fundamentals other than middle class America’s desire to visit the ocean (I also own a condo off 30A – I believe it to be more of a lifestyle purchase than an investment).

Neither the Terrazzo nor the Icon are ready to accept vulture prices with the lure of fast closings. Isn’t that a good sign? If the banks who loaned money to these developers where really pushing these guys, don’t you think that your low ball offer would have been accepted?

All of that being said, I will reiterate that I believe that condo prices in the downtown condos with excess inventory will continue to fall slightly as they burn through their excess inventory. I NEVER advise my clients to pay these developers’ asking price. Instead, there is a strategic negotiation of both price and other incentives that will allow buyers to buy at a net price that will beat the bottom of the price market. If you plan on owning this condo for more than 2 years, I believe this to be a sound purchase with a low and acceptable risk of short term loss, but a much greater chance at medium term appreciation. I am not telling anyone that they will double their investment or make a million dollars flipping, those days are over, but I am saying that buyers can expect a reasonable amount of appreciation over the next 2-5 years. Not only that, but now is the only time in history that primary residence condo buyers can lock in a rate less than 5% for a 30 year fixed interest loan. This will not be the case in 12 months.

Thank you very much, aynrand2009, for your comments and I appreciate the opportunity to respond to your concerns!

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