Nashville, We Have a Problem
It’s a pretty famous movie line that everyone has either heard or used for over the last quarter century since it was uttered by Tom Hanks. It’s the sort of, “oh crap, I need everyone updated on what’s going on so we can figure out a solution” kind of phrase. (Fun trivia fact, it was actually a misquote; the actual saying is, “Ok, Houston, I believe we’ve had a problem here.”) While the current problem that Nashville is facing is small potatoes compared to a mechanical failure over 200,000 miles from Earth on a vessel destined for the moon, it’s still a problem in today’s current market. Inventory is plummeting. I’ve written on this a few times, but, to be honest, I was expecting the fall to be the opposite of what is currently taking place. It’s a bit alarming for my business specifically, as I deal with more first time home buyers in general. There are a few trends that go along with the current problem that (unfortunately) line up to be a bit disastrous. Sorta like a mechanical failure in space.
Unless you’re blessed with a job where you’re banking a six figure income and your significant other is a high profile Instagram model, you’re probably not entering the home buyer’s market in Williamson county buying a $700,000 starter home. And then you get in to the question of, what is actually affordable to my age bracket? That obviously fluctuates based on your life circumstances, but let’s say a $300,000 house is our ceiling. That’s just below a $2,000 mortgage depending on your level of down payment. Not cheap, but it’s just the reality of buying right now. If you’re buying at that $300k price point around Nashville, chances are you’re buying something that has been rehabbed or at least updated. In East, the floor of the “rehab” market is around $300,000 so that’s my benchmark. If you can buy in Davidson county below that number you’re lucky. The reason for that is, there are no homes that are actually valued at that price point that are being snatched up right now.
Continuing to take East for our example. Say you have a dump of a house that has had the same owner for 50 years. They list it for $180,000 knowing that an investor is going to have to put $75,000 in to it to even rehab it up to something desirable for a buyer. Now we’re $255,000 in. The house just happens to be on a third of an acre and it’s within a mile of Five Points, a sought after area to live around. The investor knows that a third of an acre is enticing, so they’re going to tack on $30,000 just because he can. $285,000 for a 1,200 square foot, two bedroom one and a half bathroom house invested. Six months after purchasing, the investor is going to throw that baby on the market for $350,000 and it’ll have ten offers within 24 hours. Rinse and repeat; it’s happening all over the place. And that is easily on the low end of the market. So you either have a $2,300 mortgage or you’ve saved up $50,000 in the middle of a pandemic and are able to have a large down payment. That’s the ugly reality of where we are. If there were hundreds of these going live, we could at least have a fair barometer of where the market is, but that’s just not the case. The market is starving for sellers and real buyers are the ones suffering the consequences.
In August of last year, there were 4,140 closings, 3,561 homes pending (under contract), and 11,460 homes active on the market. With a median sales price of $315,000. Those are very healthy, robust numbers. For 2020, those numbers show an alarming difference. The amount of closings stayed about the same, with 4,380 homes closed on in August. However, there were only 8,459 homes in the market inventory. That’s over 25% less homes on the market with the amount of closings being slightly higher. Pair that along side 4,220 homes pending in August, and it’s an even more dire situation. It’s a legitimate problem. You still have investors all over Nashville buying up properties. Companies are still allowed to loophole their way into SPR licenses for the next three months. And rent prices are still trending upward. All factors limiting a buyer’s ability to buy.
If you’ve been fortunate enough to keep your job throughout the craziness of 2020, you’ve never been in a better position to buy a home. You’ve most likely been able to save money because you’ve had multiple months of not commuting, less eating out, less travelling. Your income has stayed stable and your ability to spend unnecessarily has been limited. Woooo- let’s buy a house! So you call your handy dandy realtor (Steve from Blues Clues’ voice) and start to search for a home. Now we’re back to square one of the issue of finding a home alongside hundreds of other first-time homebuyers in this market. Every day for me feels like the Land Rush of 1889, when counties in Oklahoma were made available for settlement and 50,000 settlers literally stood at the starting line waiting to move in on the land. When a new listing goes live in the Metro area at $300,000, you’re lucky to even be able to schedule a showing in the first 24 hours, much less be able to get an offer in that isn’t competing with a dozen others.
Usually when I write stuff like this, I offer a solution of some sort to the problem. As of right now, I don’t really know of one. It’s not like I can go door-to-door asking everyone if they’d be willing to sell their home to my client- although some brokerages expect their new agents to do this when they first get started. The idiocy and amount of time wasting that consumes is mind-boggling. The motivating factor has to be this- if you own a home right now, you’re sitting on a Willy Wonka’s golden ticket. The market is most likely going to continue steam rolling forward at this breakneck pace for a while, but you also never know. There is an election in 26 days, and there is nothing in history that provides more market uncertainty about which way it will drive than elections. I’m hoping that, whoever wins, there isn’t a crushing blow to the housing economy, but if there is a change in power, there is overwhelming historic precedence that for the year after there is going to be a downswing. It happened in 2016 and will probably happen again. If Trump pulls this off, things will stay stable. If Biden wins, money will be looking for the most secure spot to protect itself; and selling homes probably isn’t going to be that spot. The real estate world is sitting on the edge of their seats to see what happens. As of right now, Nashville’s problem is a suffocating home inventory market.