While the western part of the United States is beginning to see home prices even out and even fall, the eastern part of the country is expected to see a continued trend in increased home values at least until mid-2023. With a strong economy and low unemployment, the Nashville MSA has been ranked by Zillow as the fifth hottest real estate market in the country for 2023.
Norada Real Estate Investments annual market report states, “When the housing market is booming, it is partly caused by job growth and decreases in unemployment. The housing market is inextricably linked to the economy. The health of the economy and job growth affects real estate buyers’ purchasing power. Tennessee has seen the job market increase by 1.8% over the last year.”
The report goes on to say that future job growth over the next ten years is predicted to be 41.6%, which is higher than the US average of 33.5%. Tennessee was ranked as the 11th best economy in the country in an analysis from WalletHub.”
The median price for a home in the state has increased by 6.8% in the state over the last year according to Redfin.com, with a median cost of $368,900. Price increases are higher in the Nashville, Franklin and Murfreesboro markets, all having double digit increases in home prices over the last year. However, Spring Hill has seen one of the highest increases in the nation as the tenth fastest growing city in the country according to thecentersquare.com. Home values in Spring Hill increased by almost 25% in one year.
In late December 2022, Steve Jolly, then President of the Greater Nashville Real Estate Association told WKRN, “My biggest concern is inflation and whether the Fed can get that under control. If they can’t, we’re definitely going to see more interest rate rises, and that would be devastating to the market. It would bring home sales down to a screeching halt.”
Both higher interest rates and the increase in prices has slowed the market to a point where the crazy deals and sight unseen buying necessary to just to get a home are over.
“[Buyers] don’t have to give up as many of the terms that they were giving up last year,” Jolly explained. “They can have an inspection, they can have an appraisal. They can actually get some closing costs paid or possibly even get an interest rate buydown so it’s more affordable that first and second year.”
The Zillow report notes, “Where last year’s homes were being snatched up at a breakneck pace and sales abounded, this year the flow of new listings has slowed and homes are taking more than twice as long to go under contract. That said, in the markets that are still hot, homes that go pending continue to do so rapidly even as the age of inventory increases.”
Said one local realtor, “It is like going back to the 2011 market. I have one house that has just had two tours in the last two weeks.”
While it is still very much a seller’s market, more homes are being sold at or under list price than in the previous year. Even in the hottest Middle Tennessee markets, 50% or more of the transactions are under the current listing price.
Inventories still remain low, and there are a number of reasons as to why they remain low. Boomers are continuing to stay in their homes longer than previous generations as Millennials move into the home buying market as they reach their mid-thirties and start families.
Forbes Magazine also addressed the home shortage issue in a recent article. “Another factor was investors taking advantage of easy lending terms, low interest rates and the opportunity to increase their net worth on paper,” the article said. “They bought properties to rent to third parties. As this trend became a popular way to earn money on the side, more people decided to try their hand at buying and renting properties for passive income.”
The magazine also noted, “Due to supply chain issues, fewer new homes were built during the pandemic. During this time, homes under construction were delayed further by local municipalities taking a long time to issue permits. Even as these issues have eased recently, many home builders are pausing projects due to fears of a recession and weak demand.”
Builders in Middle Tennessee, however, don’t seem to be slowing down any, but continue to build as supply chain issues lessen. This means demand and home values should even out as the year goes on, especially when combined with rising interest rates. However, with a strong economy, it is not believed that prices will fall any time in the near future.