The Nashville Tennessee Housing Market
Nashville in the recent years has been one of the few cities in the United States that experienced a sustained growth at a conservative rate. Other parts of the country, like Florida and California, seemed to have a growth and price explosion that was mistifying to the majority of the home buying and real estate community across America.
To review all the sales information for the Nashville home sales in 2009 click HERE
The USA Real Estate Market in General
Most people hear about the sellers market in the boom towns, the daily increases in sales prices, offers over and above the list price and wonder how the buyers were ever going to be able to pay their mortgage!
Now, with the collapse of the subprime mortgage market and the general tightening up of financial qualifications needed to obtain a mortgage, we have seen the pool of qualified buyers reduced. As a result of the shrinking pool the effective demand for homes has decreased. This means that the number of potential buyers looking at homes has been reduced and with a reduction in buyers means the market now has an oversupply of homes.
The Pending Home Sales Index *, a forward-looking indicator based on contracts signed in November 2009, fell 16.0 percent to 96.0 from an upwardly revised 114.3 in October but is 15.5 percent higher than November 2008 when it was at 83.1.
Lawrence Yun, the National Association of Realtors chief economist, said a drop was expected. "It will be at least early spring before we see notable gains in sales activity as home buyers respond to the recently extended and expanded tax credit," he said. "The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own. We expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the tax credit expires."
Yun has made a prediction that an additional 900,000 first-time buyers will qualify for the newly extended tax credit. This is in addition to the approximately 2 million who have already purchased and the 1.5 million "repeat" buyers also are expected to benefit from the credit.
The Mortage and Credit Squeeze
As the credit squeeze is applied to potential new home buyers, the number of first-time home buyers and entry level home buyers has been greatly reduced. This is in effect is removing the first domino to fall that starts the upward chain of events leading to the sale of the higher priced homes. If no one is buying the $150,000 homes then sellers of the entry level homes can't move up the property ladder to the next step on the ladder. In turn, the buyers of the $500,000 homes can't move until someone buys their existing home. This continues in a pyramid almost all the way to the top. The most expensive homes tend to be insulated from the overall market conditions because the extremely wealthy tend not to buy in terms of logic but more on emotion. If the home is what they want they will buy it and then spend another million dollars remodeling to suit their own tastes.
Eventually, the effect of reducing the available pool of qualified buyers results in a reduction in demand coupled with the negative press about the mortgage and real estate industry which in turn leads to a reduction in consumer confidence. This reduction in the potential home buyers desire to buy means that now even buyers that are qualified to buy are not considering entering the real estate market to buy a home because now they have two concerns:
- If they consider buying they will have to sell their current home and the perceived lack of demand would lead to a reduced sales price that reduce the sellers ability to purchase in their desired price range.
- The buyers do not want to buy if they don't have to. They are fearful of overpaying and buying at a time before the market or housing slump is seen to bottom out. In other words, the don't want to buy at the end of the sale and then find out the sale has been extended two weeks and the prices are about to fall again.
The Floating Buyer
Overall the market has become affected by the perceptions and state of mind of the "floating" real estate buyer. These are the buyers that do not have to move right away. They can quite happily stay in their current home and adopt a wait and see state of mind.
These buyers also have the option of re-examining their motivations for moving. The more time they have to consider the full implications of moving and the impact that will have on their lives the more the buyers may decide to turn to other avenues to resolve their desires to move. This will lead to more people re evaluating the potential of their current home to be remodeled and updated or have an additional room added to their home.
Changes in the Market
Once the market conditions start to swing in the other direction as external forces start to apply pressure to kick start the housing demand, such as interest rate cuts , then the floating buyer will reassess their current housing position. if they feel that they are about to miss the boat in terms of getting in before the boom and price explosion hits they will move quickly to buy a home. This, in turn starts to add to the buying frenzy which continues to build.
As other buyers see that the homes they are considering buying disappear from the market the buyers mindset now changes. Whereas before they were happy to continue to keep looking at a few more homes just to confirm that the home they have decided upon is the one now they do not want to lose the opportunity of buying that home. Now they reduce the amount of time they are willing to spend looking at homes and "pull the trigger." This leads to a reduction in the days it takes for a home to sell which then sends a signal to other buyers that its time to buy. As the demand increases as more people get on the real estate band wagon the asking price for homes increases.
The Pendulum Starts to Swing Back
As more people get into the real estate market, the floating buyer realizes that the time to sell has arrived as now homes are selling quickly. Now that the floating buyers have added their properties to the real estate market the supply of homes has increased. This gives the buyer more choices and with more choice come reduced demand for individual homes. As the demand is reduced so the days on the market is extended and slowly the sellers market will swing back to the buyers market.
* The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.
Existing-home sales for December will be reported January 25 and the next Pending Home Sales Index will be on February 2; release times are 10 a.m. EST.