As spring 2015 nears it’s merge into summer, it feels like the right time to begin discussing the recent events of real estate investing. I apologize, dear reader, for my recent absence from writing on The Urban Investor site. Due to the increased priority of a new musical project, I won’t be churning out the articles quite as frequently as the “grand opening” of the site. However, real estate discussion is too fun to stay away from for too long, so indeed there will be periodic posts.
The Nashville, TN market is remarkably on fire right now. According to one report ranking The Top Single-Family Housing Markets it is third in the United States, trailing only Denver, Colorado and San Antonio, Texas. But it isn’t only single-family homes that are garnering attention. Music City is teeming with new developments including condos, apartments, hotels, office space, retail and commercial projects. I wrote about my concerns for a potential housing bubble, and I still have those concerns. However, the demand for Nashville property has shown no signs of slowing down in 2015. In fact, there has only been increased demand since 2014, adding more fuel to the fire.
From an active investor’s perspective, it is a wild and exciting environment. I compare the real estate market to the food chain. Hovering around the top are multitudes of hungry home-seekers. They are waiting for new listings of quality houses they can devour. Some are buyers and some are renters. They want to live in Nashville, and they are having a hard time finding the house they want for the price they want. According to CNN, about 82 people are moving to Nashville every day. These folks are growing increasingly frustrated with the limited inventory of rentals and homes for sale. As their searches drag on, they tend to lessen their demands from their initial checklist of what they were looking for. Often they settle for a house that is either smaller, uglier, or not in the location that was originally desired. Or else they elect to pay more.
Over the past few months I have asked the question, “Do you think Nashville is experiencing a housing bubble?” to several respected individuals involved in real estate. After talking to a banker, appraiser, commercial broker, realtors, wholesalers, and other investors, the responses have been quite varied. Some seem to think that Nashville is just beginning a growth transformation that isn’t going to stop anytime soon. They believe that with continued population growth continued housing demand will follow. And as long as there is steady demand, prices will justifiably appreciate.
While Nashville’s economy appears to be healthy, others I talked to are concerned that the national economy isn’t very strong and will eventually weaken Music City’s real estate. Many of the home buyers are moving to Nashville from California, New York, and other higher priced areas. Their money goes farther in the mid-south, buying bigger and better houses than coastal options. But any type of dip in the national economy could impact the out of state dollars that have added fuel to Nashville’s housing fire. Even if Nashville’s local market sustains its growth, it isn’t immune to unfavorable outside forces.
It is 2015, nearly eight years since the beginning of the end of the nationwide housing bubble that grew in the mid 2000’s. Different parts of the country were impacted more severely than others, and some areas still haven’t recovered completely. Meanwhile, enough time has passed that a few cities such as Austin, Miami, San Francisco, and Los Angeles are experiencing rapid price increases and heavy demand. Are the real estate prices in some cities becoming overvalued again? What does a housing bubble look like? And how can you tell if you are in the middle of one? It seems like it would be easily recognizable, but history has told us otherwise. Investopedia smartly defines a housing bubble as:
A run-up in housing prices fueled by demand, speculation and the belief that recent history is an infallible forecast of the future. Housing bubbles usually start with an increase in demand (a shift to the right in the demand curve), in the face of limited supply which takes a relatively long period of time to replenish and increase. Speculators enter the market, believing that profits can be made through short-term buying and selling. This further drives demand. At some point, demand decreases (a shift to the left in the demand curve), or stagnates at the same time supply increases, resulting in a sharp drop in prices – and the bubble bursts.
The rapid growth, increased media attention, and overall hype of East Nashville in the past few years elicits differing opinions from its residents. An interesting article titled, “After the Gold Rush” featured in The East Nashvillian discusses some locals’ views about the frenzy of positive attention. One concerned resident, Joshua Hedley shares his thoughts:
“I’m happy the city is growing. There are so many great things I want people to get a chance to experience. But with growth comes change, and some of those great things are taking a backseat to some not so great things. The little mom and pop organizations that made the area special are fading away. The chicken fried steaks and mashed potatoes are turing into gluten free braised tofu salads and pan-fried, raspberry-infused kale chips. So whats wrong with that?
The Monthly Housing Summary released this month by realtor.com provides data for the top 200 cities/metropolitan areas in the U.S. There are currently 1,962,296 listings nationwide, and the national median listing price is $214,000, which is an increase of 8.1% over last year.
The highest priced area is Santa Maria – Santa Barbara, CA where the median list price is $863,000. Also high on the list is San Jose-Sunnyvale-Santa Clara, CA, where the median list price is $698,000, a 10.3% increase in one year. Other California cities including San Francisco, Salinas, San Diego, Ventura, and Los Angeles each continue to hold high median listing prices over $500,000 as well.
East coast cities Boston, MA – $386,000, and Washington D.C. – $382,000 posted solid increases in their median listing prices of 5.9% and 5.8%, respectively.
Home sales in Nashville increased in the third quarter of 2014 by 17.8% compared to the third quarter of 2013. The average sales price for the same time period rose by 6.5 % to $233,925, while the median price rose by 6.7% to $184,000. The data is for all of Davidson County/ Metro Nashville, but the inner-ring neighborhoods saw greater appreciation than that. Several areas of town really stood out, and savvy investors will take note.
The largest gain in average price for zip code (with a minimum of 50 sales) was in 37207, where values jumped 40.9% from just over $90k last year to over $127k this year. 239 units sold in the third quarter of 2014, which was an increase of 44.8% in sales. The geographic boundaries of this zip code roughly run along Ellington Parkway and Whites Creek Pike, from the Cumberland River north of downtown to Briley Parkway. Another section juts out to the north.