Don’t Believe the Nashville Real Estate Hype…Yet

I have read either this exact sentence or a very close derivation of it about a dozen times since the Greater Nashville Association of Realtors (GNAR) published the February 2010 home sales results: “Home sales are already at a frenzied level in the first month of the year so you better hurry! Inventories are at historic lows and interest rates are great.”

2010 nashville real estate stats

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.

Video: 10 Biggest Mistakes Home Sellers Make

Most of you know that I am not the type of real estate agent who typically reposts and regurgitates a bunch of videos, but I have to make an exception. This video is very well done, points out all of the obvious mistakes that some sellers continually make and is entertaining all at the same time. That is not an easy feat.

Takeaway: In a less than favorable market for sellers, it is even more important than ever to make sure your home is 100% ready for showings. It’s no longer a difference between getting the highest and best price, but the difference between being able to sell or not at whatever price the real estate market can/will/could/should bear.

Warren Buffett Predicts End of Housing Crisis

nashville housing marketAccording to Bloomberg News, Billionaire Warren Buffett said the U.S. residential real estate slump will end by about 2011, predicting that’s how long it will take demand for homes to catch up with the supply. “Within a year or so, residential housing problems should largely be behind us,” Buffett wrote on February 27 in his annual letter to shareholders of Berkshire Hathaway Inc. “Prices will remain far below ‘bubble’ levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits.”

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.

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