Staff associated with the Atlanta Fed's Center for Real Estate Analytics traveled to Nashville last week to meet with local real estate industry contacts and discuss recent developments in housing trends there. Contacts included leading real estate agents, builders, lenders, and appraisers. The positive housing trends that have been witnessed in other markets and reported in previous blog posts were echoed by real estate contacts in Middle Tennessee.
Contacts reported that demand has picked up. Middle Tennessee has seen an increase in sales; the Greater Nashville Association of Realtors reported that home sales were up 24 percent year to date in June. Gains were largely thought to be driven by first- and second-time homebuyers in new construction, move-down buyers looking to purchase smaller and cheaper homes, and investors purchasing distressed properties.
Contacts expect sales will continue to increase throughout 2012. Improvements in Nashville's home sales are thought to be driven by several factors—including the relocation of large firms to the area that will soon begin transferring in their employees—and a sense of urgency by buyers looking to take advantage of the low interest rate environment before house prices appreciate significantly in value.
The inventory of vacant developed lots (VDL) is steadily declining; data provided by Metrostudy reveal that VDL inventory is down 24 percent from its peak in the first quarter of 2010. Our contacts referred to this decline several times, and they expressed concern over builders' and developers' inability to access financing for more new construction.
The inventory of distressed properties is also shrinking. Several contacts reported that distressed inventory has been largely absorbed, a notable improvement from a year earlier. This absorption bodes well for prices, given that distressed properties tend to place downward pressure on house prices in a community. Further, our contacts expect the levels of distressed inventory to continue decreasing over the next six months.
With increasing demand and a shrinking supply of lots and distressed properties, it is no surprise that house prices are slowly starting to appreciate in value. Real estate contacts familiar with the market indicated that house prices have reached a bottom.
And when asked about expectations for house price growth going forward, most contacts expect modest growth to occur.
Again, while these responses represent only a segment of the regional housing market, we read the results as further indication that the housing market is making progress toward recovery.
By Jessica Dill, a senior analyst in the Atlanta Fed's Center for Real Estate Analytics