If you believe that pending sales data represents a good indicator for future real estate closings and market confidence, you are probably feeling quite optimistic. In the year over year analysis of pending sales, you clearly see that the Nashville market has ‘turned that corner’, but you have to ask yourself, “what is driving these numbers?”
February 2009 showed the greatest discrepancy at a 33.5% deficit and steadily closed the gap over the next 6 months until the lines crossed in August. Now, September has proven that the August results were not a fluke and that even seasonality will not cause the year over year gains to be lost.
As I thought more and more about these numbers, I realized that the difference between 2008 and 2009 can most likely be explained by the Housing Stimulus Bill and the ever present first-time home buyers tax credit. While there are no definitive numbers that show how many first-time buyers bought that absolutely would not have bought without the tax credit, it seems reasonable to assume that number to be a small, yet significant number that would affect this particular analysis.
Where does that leave the Nashville housing market?
Once the Housing Stimulus expires at midnight on November 30th, I think that you will see an immediate effect of number of pending sales. Not only will we see the effect in December, but if my theory is correct, we should begin to see a small effect in October and a little larger effect in November’s numbers.
Thus, should we see October’s and November’s pending sales numbers continue to trend above 2008, we will know that the Nashville housing market is not being artificially supported by government and that we are in a true recovery.
Personally, I am still on the fence somewhere between true recovery and artificial simulated market for Nashville as a whole, but I am bullish on certain condo buildings and certain pockets of residential housing in areas of Nashville like Green Hills, Vanderbilt/West End and Brentwood proper.
I also know that several local and regional banks have been holding off on taking back real estate, perhaps optimistically. But, these banks are going to have to take this inventory back sooner rather than later and when they do, I expect buyers to be ready. There most likely will not be any market stagnation for these properties. Rather, I believe that you will see velocity return to the market while pricing averages continue to dip until the majority of these distressed assets are absorbed.
In other words, buyers will be prepared and properties will not last long at their new distressed price. Once that inventory is cleared, do not expect there to be a second round. It’s a one shot deal for the residential buyer looking for premium homesand condos at distressed prices. This isn’t Las Vegas or Phoenix, Nashville did not experience a miraculous run up in pricing and will not experience a miraculous number of steals.
It is worth mentioning that Congress is currently contemplating the continuation of some sort of housing incentive program that would continue after November 30th.