Will home sales in Nashville finally see a slow down?? Is this the end? Is the bubble finally bursting? See the video below for the full analysis and breakdown, linked below to my Youtube!
Let’s take a look at some data together, and be careful to always analyze the information that is readily available to you. It’s funny because so many people will say things like, “it FEELS like 2008”. But feelings don’t always equal reality! So it’s important to analyze real facts to get to the bottom of things.
So to start, we may be heading into a recession, and we won’t know until this quarters numbers are out. But it’s a definite possibility. with the gobs of money that has been printed and all the crazy runaway inflation in the market. But n a recession do housing prices always fall?? Let’s take a look? Corelogic put together this helpful graphic in showing the last recessions since 1980 in relation to home prices and look what information it surprisingly shows! As you can see in the graphic below, in most of these recessions, housing prices continued to INCREASE, not decrease! Only in 1991 did they fall, and only by a small amount, and then in 2008, we all know what happened with the housing market. Even in my market in Denver at the time, some homes fell as much as almost 60%, and it was shocking.
But really that was due to inappropriate lending practices, which was the crux of where the issues were. People were barely putting down any money down to buy a home, if any at all! Also there were no qualifications needed, or verification to get approved for a loan, so anyone could almost buy anything.. whether they could afford it or not. So when housing prices did dip, people ended up upside down. That is not the case in the past two years, in fact just the opposite! Lending has very stringent qualifications now. And if a home does not appraise, even for those who waived their appraisal gaps, they themselves brought the extra cash to closing in order to make that happen. Which means that many people have 20-40% equity plus in their homes just to purchase it. This is a far cry from where we were in 2008.
In addition, one thing that might shock you.. is that according to this data, those who are waiting for all the foreclosures to hit the market might be in for a shock. Take a look at this data from Corelogic. This shows that loan delinquencies just dropped to the lowest level they have been at in more than 23 years! And why do we think that is?? That is because housing prices have increased so greatly over the last two years. Even if someone was on the verge of being upside down in their home pre-pandemic. Just by not selling and the market increasing, they likely gained at least 20-30% equity, just by staying in their home. So if they were in distress at the beginning of the pandemic, it’s very likely that they gained enough equity to be able to sell their home and walk away with profits, instead of selling their home in distress. This is fantastic! See the full article here for details.
But so many were waiting on the sidelines for this happen, and continue to do so.. but their waiting may be futile for that rash of foreclosure to take advantage of.
But what is the culprit because there is at least a cool down happening. And the ones I think that will be hit the hardest is going to be new construction home builders. In this article from CNBC, they show that sales of newly built homes tumbled over 16% in April, while prices soared. And I would speculate that this is due to the rising interest rates, and uncertainty of where those rates will be when they can finally lock that rate in. They also go on to state that they are seeing an uptick in cancellations for new home builds as well, and again I would say that is for this reason. That if you had planned on buying a new build months ago when interest rates were at least 2 points lower, your payment would greatly increase by now, and possibly push those homes out of budget for people. This is going to be hard for many, which may result in more new builds going back to market.
But the bottom line is that real estate markets are driven by supply and demand. And that relationship is measured in the real estate world in months of inventory. A healthy balanced market with enough buyers for homes is 6 months of supply. Where we currently sit in the Nashville and middle TN MLS, is about 2.5 months of supply, so well under where we would be. We haven’t had 6 months of supply since about 2013! So many listings would have to appear before we even hit a balanced market. And in fact, as a reference we had almost 20 months of inventory in 2008 to give you perspective.
And a lot of this will be market dependent as well. Some markets may be hit more than others. A lot of people are relocating to TN from a handful of States. According to the Wall Street Journal and Moody Analytics, Nashville is the second strongest job market in the nation. Top cities are Austin, Nashville, Raleigh, Salt Lake City, and Jacksonville. See full article here. And according to Fortune Magazine, they took data and analyzed which markets are the most likely to have home prices drop, and Nashville was in the very low category. “In order to determine the likelihood of regional home prices dropping, the real estate research firm assessed factors like income growth projections, unemployment forecasts, consumer confidence, debt-to-income ratios, affordability, mortgage rates, and inventory levels.” In addition they state,” While CoreLogic finds the odds of a home price correction are rising, it still believes nationwide home prices will inch higher over the coming year. Between March 2022 and March 2023, CoreLogic predicts U.S. home prices will rise another 5.9%.”
All in all, no one really believes a crash is coming. A slow down is likely though, and welcomed. I do believe we will see less multiple offers, and while pricing will likely still increase, it won’t be increasing 30% per year like it was, which was just unsustainable. Most of the data, including interest rates, and foreclosures etc, is just leveling back out to where it was pre pandemic. Hopefully we can get back to some kind of normal. We will want to look at the numbers from May when they come out though and I believe they will be telling of the rest of the year, so I’m looking forward to seeing those as soon as they come out and will share once they do! Definitely watch the video though and subscribe for more great Nashville info on my channel!! And of course as always reach out to me with any and all questions!!
