5 Year Nashville Condo Market Analysis

The economic recession has affected the US housing market disproportionately. The problem is that the local, regional and nation media outlets are very good at pointing out the obvious bad markets like Las Vegas, Miami and Phoenix, but they are very bad at explaining where the rest of the local markets are in the housing cycle. In fact, most media outlets are simply content with spouting out static market data without the necessary analysis that would follow in your Economics 101 class in college. This leaves buyers and sellers having to decipher their local housing market riddle themselves.

What Nashvillians believe about the condo market

In an effort to find out what the general public in Nashville thinks about the downtown condo market, I used the oldest method in the book, I simply asked. It turns out that 79 out of 100 people not in the real estate or development industries thought that the Nashville condo market was about to crash. That’s a pretty large percentage.

When I asked how long they thought the condo market would take to turn around, the average answer came out to 5.7 years. That’s a pretty long time to reach the bottom.

When I asked how bad do you think prices are now and what year in the past would you equate our current pricing I got very consistent answers. All 100 said that recent auctions and “too many condos” on the market have driven prices down and made this a horrible time to buy a condo. The average equivalent year in Nashville’s past was guessed to be mid 2002.

When I then asked what defined “the bottom” of the condo market, I got a bunch of media-like answers and a couple more dynamic answers too. Most people said that the bottom of the market was at the point where prices began to go back up. Some said that the bottom was the point at which existing inventory began to appreciate – interesting. A couple others said that the bottom was the point at which developers and banks began to build new high-rises – also interesting.

What the data shows about the Nashville condo market

Let me first start with everyone’s hot button, price. Most are not surprised to learn that the average median price for a Nashville condo is lower than it was for each of the past 3 years, but all are very surprised to hear that all of those average prices are higher than 2005 prices. another interesting fact is that the median price has been rising for the past 2 months and will most likely rise again in December. Have we reached a median price bottom? That is very had to conclude at this time.

November 2009 condo price comparison

When I asked people about their opinion of the bottom of the market, many eluded to a time when the prices began to rise, but some touched on a time when more condos were sold. Looking at the historic data, the Nashville condo market closings are quite strong. So strong in fact that we’ve eclipsed 2008’s numbers and are coming closer and closer to doing the same for 2005’s numbers as well. More importantly, if you only look at the 2009 data line and were to draw a trend line, you’ll notice a bull upward slant for the past 11 months. Even in a time when our traditionally cyclical market loses momentum, the Fall 2009 condo closings are bullish.

November 2009 condo closed sales comparison

There is one area where the general consensus is correct, inventory. Our total condo market inventory is still flirting with 2007’s and 2008’s highs. At the moment, the 2009 inventory levels are lower than each of the past 2 years, but are still significantly higher than 2006 and certainly 2005. None of these inventory levels reflect the shadow inventory, but one must believe that shadow inventory levels are currently higher than they have ever been. The good news is that condo inventory levels have been dropping consistently since May 2009 when developers began to offer close out specials in earnest in an effort to dissolve their higher than usual inventory.

November 2009 condo inventory comparison

Nashville condo market analysis conclusion

It is not mid 2002 again in the Nashville condo market. Prices have not dropped to the pre-boom prices of 2003-2004. Inventory levels are still higher than what our market has traditionally carried and they are ever so slightly falling.

In my opinion, we are at the bottom of the condo market in Nashville. The next 12 months will be the absolute best time to acquire a condo and also be the worst possible time to sell a condo. Condo median prices will more than likely remain stable, but inventory will continue to burn off as the higher priced condos are sold at discounts that include big developer incentives. As a result, the average price per foot in each of the larger condo high-rises with developer owned inventory will fall to net record lows. The number of sales will continue to accelerate as more buyers begin to realize that the most desirable condos are disappearing from the market and jump off the proverbial fence. Buyers who are not equipped with all of the facts will indeed pay a higher amount than those buyers who seek out expert opinions and research. Those with a Warren Buffett mindset will be the ones who profit in just 3-4 years when prices spike due to a shortage of condo inventory.

Velocity Condos in Nashville Sales Update

As of the end of November, the Velocity in the Gulch has closed 20 condos out of a possible 265 (7.5%). Granted, the grand opening was just over a month ago, but sales have yet to set any impressive marks. Surprisingly, the average price per square foot still far exceeds $300/ft coming in at $330.58.

Date Name Unit Price Sq Ft Price/ft
6/17/2009 Nashville Urban Ventures, LLC 247 $190,400.00 543 $350.64
7/14/2009 P. Copeland 112 $203,950.00 621 $328.42
8/3/2009 J. Williams 337 $137,500.00 442 $311.09
8/4/2009 D. Lee 301 $144,000.00 419 $343.68
8/5/2009 B. Frazier 108 $208,400.00 621 $335.59
8/18/2009 M. Abdallah 327 $273,700.00 840 $325.83
8/31/2009 J. Osborne 103 $134,900.00 419 $321.96
9/1/2009 J. Johnson III 428 $231,900.00 710 $326.62
9/4/2009 R. Canos 114 $309,900.00 840 $368.93
9/18/2009 J. Linares 312 $199,400.00 621 $321.10
9/23/2009 B. Applegarth 132 $190,000.00 621 $305.96
9/29/2009 W. Hartness 456 $220,000.00 710 $309.86
9/30/2009 R. Schuman 425 $190,800.00 543 $351.38
9/30/2009 R. Grantham 441 $146,500.00 419 $349.64
9/30/2009 T. Mikula 274 $180,000.00 543 $331.49
10/22/2009 E. Davidson 248 $182,750.00 543 $336.56
11/9/2009 J. Crafton 251 $330,000.00 960 $343.75
11/20/2009 J. Calhoun 237 $137,000.00 442 $309.95
11/25/2009 G. Papica 200 $280,000.00 865 $323.70
12/2/2009 P. Bell Jr. 427 $265,000.00 840 $315.48
  Average Price Paid   $207,805.00  628 $330.58


What’s next for the Velocity

Sales prices are going to have to come down in the building for these condos to sell. To put this into prospective, the 22-story Icon next door has averaged just over $295/ft for their last 20 closings (includes 5 price controlled MDHA condos). If you take out the 5 MDHA condos, the last 20 sales average $315/ft. I cannot see how the Icon is going to be less valuable than the Velocity in the long term.

On the rental front, a 2/2 Flash floor plan on the first floor rented for $1,695, a 1/1 Speed floor plan on the 4th floor rented for $1,375 and a 1/1 Speed floor plan on the 3rd floor rented for $1,295. There is a 1/1 Jet floor plan that is having trouble leasing for $1,100 due to its 543 square foot size. Potential Velocity renters are just not interested in condos this small when there are other options available. The Jet floor plan condo is the only unrented condo I am aware of in the building.

While the Velocity appears to have a very low vacancy rate, there is no debating that condos rent for higher amounts in the Icon.

5:52pm Note: I have been told that I am missing 1 sale. I will verify that sale when I pull deeds again at the beginning of next month.

See all condos for sale in the Velocity in the Gulch

Ireland Street Townhome for Sale $195,000

Priced at only $195,000, this stylish urban 2 bedroom, 2.5 bath
townhome with garage offers inspiring skyline views!

Ireland 28 Nashville townhomes

The Ireland 28 townhomes were built just 5 years ago and feature hardwood floors, upgraded tile, open floor plans, terraces, rear patio, large master bedroom with walk-in closet, stainless steel appliances, modern fixtures, fresh paint, 9ft ceilings and Pella windows. These townhomes are convenient to downtown, retail, restaurants, historic Germantown, minutes to schools, churches and I-65 + you can walk to Nashville’s famous Farmers Market for fresh fruits and vegetables.

The owner of this townhome has recently married and moved to the suburbs so immediate possession is available. In addition, he has agreed to price this property at $134/ft, a fraction of the price of what you would normally pay, especially in downtown Nashville – an exceptional value.

Directions: From downtown take Rosa Parks Boulevard (8th Ave) North 3 blocks. Make a left on Jackson Street (parallel with Farmers Market), left onto 9th Avenue, then first right onto Ireland Street. This particular townhome is located at the top of the hill overlooking all of downtown Nashville (actual picture below).

More pictures and details below:

Tennessee Mortgage Delinquencies and Foreclosures

foreclosure sign

Mortgage delinquencies and foreclosures were weak in the second quarter. According to Tennessee Housing Market, a publication of MTSU’s Business and Economic Research Center, “The continued weakness in mortgage loans is a consequence of the financial stress Tennessee households are experiencing as unemployment rises and household incomes fall. Mortgages past due in Tennessee rose to 10.33% in the second quarter, higher than 10.09% in the first quarter. New foreclosures in Tennessee continued to climb, reaching one percent of all mortgages. The current inventory of mortgages in foreclosure recorded its largest increase yet, rising by 0.26 percentage points from the previous quarter.”

These type of numbers put Tennessee right in the middle of the pack as the 24th ranked state for number for mortgages that are under water. However, only 1 in every 100 mortgages being in foreclosure puts Tennessee as the 18th healthiest state.

Mortgage Rates Set Another Record Low

Mortgage Rates 12-7-09Mortgage interest has fallen to the lowest level since Freddie Mac began compiling its weekly survey in 1971, as the average 30-year fixed rate declined to 4.71 percent last week from 4.78 percent a week earlier.

Mortgage rates were also more attractive for 15-year fixed loans, which fell from 4.29 percent to 4.27 percent, but consumers may have difficulties qualifying for these loans as lenders now demand higher credit standards.

The Mortgage Bankers Association’s index of application demand, which rose 2.1% on a seasonally adjusted basis during Thanksgiving week from the previous week, shows that consumers were looking to take advantage of mortgage rates at a historic low. I am actually surprised that more homeowners did not take advantage of the opportunity to refinance their existing mortgages.

Honestly, once China decides to stop funding our coffers, these rates will be a far distant memory.

The West End Condos Auction Results

John Coleman Hayes successfully sold at least 40 condos in the past 60 hours, 32 of which were sold during Saturday’s live auction.

The condo auction, held under a semi-heated tent in the West End’s motor court, was well attended with an estimated 185 potential buyers in attendance. Jerrold Pedigo began the auction promptly at 11:00am by telling auction bidders that 3 condos had sold the prior day and would no longer be a part the day’s auction. The auctioneer did not inform the crowd of the sales prices, but did identify the condos as unit numbers 602, 502 and 503, all 2 bedroom condos with excellent downtown views.

Once the auction began in earnest, the bidding was surprising brisk with the first condo garnering more than a dozen bids and eventually selling for $226.30/ft, an auction high. As expected the next several condos began to sell for slightly lower prices, but the real shock came for me just 5 lots later when the auctioneer accepted a bid of $174.26/ft. Most in the audience seemed surprised that the developer and bank were willing to accept rates lower than $180/ft as well.

Auction prices recovered soon after only to fall to $159.74/ft for the 10th lot auctioned, a 2 bedroom, 2 bath, 1,997 square foot monster condo on the fifth floor. The original asking price for this particular condo was $590,000, but the auction only brought $319,000 after the 10% buyer’s premium was added to the bid price – just over 54% of the original asking price.

The crowd seemed to embrace the auction at this point, redoubling their resolve that this was a day where money could be made in a down real estate market. Most realized that this auction was a true liquidation sale and that all of the condos were going to be sold during or soon after the sale. As such, many causal bidders became serious bidders as their fingers flew across their calculators several times in a virtual effort to pinch themselves.

The auction went on to sell 32 condos at an average of just over $177/ft, well under today’s replacement costs. Soon after the live auction concluded, 2 more three bedroom condos were sold in a flurry of after auction activity and were posted to the auctioneer’s ‘big board’.

As the crowd began to disperse and retreat to the warmth of their cars, more wheeling and dealing was happening in the lobby of the West End. Several would be bidders had gathered around the developer and were lobbing low ball offers left and right for the remaining condos as well as on several of the 3,000-4,500 square foot penthouses. Reportedly, Reese Witherspoon’s father as well as Taylor Swift’s mother had low offers rejected on the two largest penthouses in the building. However, it is believed that at least 5 more auction condos sold during this time.

 West End Auction Results

What’s next for The 72 Condo West End?

With an additional 40 residents added to the 7 already in the building, the West End will presumably soon be eligible for FHA backed financing having 65% of the building sold. When asked, the developer said that he plans on returning the unsold condos to their pre-auction prices and waiting until the Spring or Summer to sell. With the remaining one-third of the condos being much larger penthouse style units, it seems likely that it will take some time prior to selling out the entire building.

However, rumors are circulating that the developer, John Coleman Hayes, is having trouble with two apartment complexes recently built next to MTSU in Murfreesboro. Some believe that Mr. Hayes is in danger of defaulting on one of the construction loans which are serviced by Grandbridge Capital, a subsidiary of BB&T. I have found no corroborating evidence of this rumor to date however, I did confirm that Mr. Hayes did build student housing near MTSU and that there is approximately $50 million in debt on those projects.

Assuming that this rumor is not true and that Compass bank will be satisfied with receiving more than $14 million by January 15th, I would expect (hope) that the West End condos will return the unsold condo prices to higher levels, but not as high as the pre-auction prices. Although, it is very hard to price the condos much higher than the auction prices due to future appraisal concerns. This concern does not affect the penthouse style condos as much as condos that are similar to those in the auction.

What’s next for the Nashville condo market?

Good question, but the answer is wholly obscured. The Terrazzo in the Gulch recently auctioned off 25-28 of their remaining condos and some expect one other condo project to follow suit within the next 3 months. The 5th & Main condo project in East Nashville has been parked in receivership since February as has the 136 unit, 2 tower Braxton condo development in Ashland City (yes, Ashland City).

The Rhythm at Music Row has sold 30% of their 105 condos, the Icon in the Gulch has sold 48% of their 420 condos and the Encore has sold almost 80% of their 332 condos. Condo inventory is burning off, but is that rate fast enough for the banks who are holding these construction loans? That answer is unknown, but recently prices in all of these buildings have begun to inch downward. By the same token, sales have increased and the most desirable condos are being picked off the market faster than the main stream media realizes.

Should the Nashville City Council approve the financing for the new Nashville Convention Center and reuse of the old convention center for the new Medical Trade Center in January 2010, available condos could become scarce by 2013.

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