Nashville Real Estate Market

[c00624]

I saw some stats yesterday that I thought were interesting. I am not sure if they're accurate, but I saw on a realtor's website that for Nashville the median household income was roughly $41k and the median house was about $180k. This sounds to me like the median household can't afford the median house which would definitely be a bad sign for the real estate market. Any thoughts?

[ATLBrain]

Assuming that everybody had just bought their own homes, that would be an interesting stat. However, you have so many variables like numbers of retired couples with lower incomes (including those with a lot of wealth), numbers of homes already paid-off, when they bought their home, how many of those earning around $41,000 are actually renters, etc..

I guess the long/short of your question is addressed by avoiding the assumption that all of those making a median of $41,000 are buying a home. Moreover, they might have bought their homes 5-10 (or more) years ago when the median price of a home was $110K or less (just a guess on the figure). Remember, real property generally appreciates over time.

Not taking a dig at you necessarily, but people too often just look at statistics on the face. The government is great at recycling statistics to make points that are too often not scrutinized closely.

[Jeeper12]

All the brokers and developers I've talked to lately say the market for single family and condos has softened severely in the last month or two. I don't know how long this will last but it seems like the continuing increase in inventory is starting to give buyers a significant advantage allowing people to be much more patient about making decisions. Even Richard Courtney, the eternal optimist, had a column a few weeks ago talking about how the buyer advantage has been increasing due to swelling inventory.

Also, according to someone who keeps track of what is going on at the Viridian there are now 61 active listings and another 20 or so that were active that haven't sold but for some reason aren't currently shown as active in the MLS. So it sounds like there are still about 80 or so owners that would prefer not to be. No closings occured in the last few weeks and average closing prices on all resales is down to about $344/sf despite a handful of initial resales over $400/sf late last year. Sellers continue to be stubborn asking, on average, $373/sf but week to week price drops of $10k or more are becoming more frequent.

[Kheldane]

All the brokers and developers I've talked to lately say the market for single family and condos has softened severely in the last month or two....according to someone who keeps track of what is going on at the Viridian there are now 61 active listings and another 20 or so that were active that haven't sold ...

[MTSUBlueraider86]

Until the homeless problem is fixed downtown, I do not see the trend changing anytime soon. I would not pay $1,000,000.00 for a downtown condo to smell urine everywhere.

[producer2]

Until the homeless problem is fixed downtown, I do not see the trend changing anytime soon. I would not pay $1,000,000.00 for a downtown condo to smell urine everywhere.

[Jeeper12]

WTF are you smoking boy? Do you really think that a family earning the "median household income" is in the market for Viridian condos and that a low median household income is the reason for unsold units in that tower???

Unsold units in the viridian shows reluctance among a much wealthier set to live/invest in downtown.

[Kheldane]

My post obviously didn't have anything to do with the "median household income".

[titanhog]

It was not obvious that your post was purposefully off topic. I thought you were really trying to contribute to the discussion started by c00624 about median household incomes and their impact on the real estate market.

Plus, your oversensitivity to antagonism and profanity is annoyingly juvenile. I realize you're just a kid, but try not to act like it in every post...

[Rural King]

WTF are you smoking boy?

[Jeeper12]

I may be without much company in this view but I really believe we are in for quite a condo correction over the next 6-18 months. For those that are skeptical please hear me out.

Viridian continues to struggle getting it's resales in the hands of true buyers. This, despite some pretty aggressive discounting as of late. For the period from mid May to mid July there were only 4 closings averaging about $325/sf (2 were at $299/sf and 2 were about $345/sf). Given the active and inactive listing activity it appears there are still about 70 os so unit owners wanting to sell. You don't have to be a math major to see that, absorbing only 2-3 closings per month, it will take a very very long time to get V 100% occupied with real buyers.

We're now seeing Encore offering heavy discounts for their remaining units (see Encore thread). This will only add to the pressure for V investors to continue slashing prices in order to avoid the $3/sf/mo carry they are currently suffering, those not rented anyway. My guess is that Novare realizes that a healthy percentage of its initial Encore buyers were investors in Viridian units that moved their chips to Encore and will be very likely to offer them (Novare) stiff competition after closing if Novare is still sitting on inventory. Thus Novare's apparent willingness to offer $20k discounts to move its remaining stock.

All this is probably quite good for the market in the long run but the problem is V and Encore aren't the only story here. We also have Bristol West End resales hitting the market now and if Bristol ever finishes ICON there will be another 400 plus units which many, including me, seem to believe were primarily bought by investors. I haven't spoken to anyone who paid less than $325/sf and most that I've talked to seemed to have shelled out between $350/sf and $400/sf. Investors looking to do more than break even (after closing and resale cost of 8%) will need to clear at least $30/sf more for their unit than they paid. And while some are optimistic that ICON can be finished in 8 months I don't see that as likely. The reason this is important is because if ICON buyers have an opportunity to walk (without even losing their meager deposits) because of a delay beyond next April I think it's quite likely that most of the investor crowd will choose to do so, especially if the market for these units is looking more like $300/sf than $400/sf at the end of the year. If we think that 60 units in the V are tough to move, what would it be like to have 400 (50 V, 100 Encore, 250 ICON) 1on the market at roughly the same time ?

Further adding to the mix is the Rhythm project apparently getting started with 120 units priced between $350-$400/sf. There are others too but Rythym and Velocity are probably the two most likely to break ground adding significant units in the next few months. Call me chicken little but I don't see how all of this get's absorbed cleanly in the next year and a half. Maybe that's why the Downtown Partnership put out a release this week expressing long term confidence in the state of the market but warning that we may well experience some short term turbulence as the market sorts itself out. In the real estate business 6-18 months is a relatively short period of time, and I think we're in for a bit of a storm in the condo market.

[producer2]

Jeeper,

you are trying to create an issue that just does not exist. Let's take Encore for example since I own a unit there. We purchased a unit on the 15th floor, the same floor plan is currently listed by the developer on Realtracs for $287,700 for 836 square feet. Without going thru all of the math exercises let me assure you we paid substantially less than that price for ours with the same updated flooring and a quite nice parking spot (however we did not receive a new refrigerator, but do get money off at closing.) so to make an issue out of their offer is really not an issue at all but a sales ploy on their part to move the few remaining units they have and start work on a new sales office for their upcoming project in the Gulch. Nobody said flipping condos in a market where many new ones are being built was a smart move so yes buyers may have to move closer to the actual sales pricing in order to move the units but it does not mean there is no market. So why are you talking about a correction? Is this a correction of the over pricing many are doing at the Viridian? The sale prices of new units seem to be holding steady.

[Jeeper12]

I think we may agree on this more than seems apparent. You may be fine with the Encore unit you purchased because you bought early and, you're right, the $20k discount probably only brings the pricig back to about where it was to begin with. However, my guess is there is probably quite a few buyers that bought after you but before the clearance sale. They will obviously not fare as well as you or the people buying at a discount this summer. The correction I speak of relates to a few different things. One is the rather precipitous drop in V prices (over $400/sf to recent comps below $300/sf) and the continued lack of sales despite these reductions. 4 sales in two months at V is not steady IMO but I agree with you (I think) that a buyer market would perk up if the average V asking prices of about $370/sf were to become more realistic, say 300/sf. Part of my theory is that if the many V investors still trying to sell don't get realistic before Encore and ICON (and Bristol West End) deliver it will only make a difficult situation worse.

And again, I think the most probable outcome facing the ICON is for many of the investors there to walk if they get a chance as a result of a contract delay. If I am correct and the V investors (over the next 6-8 months) need to get much closer to $300/sf to move their units, how might this effect the psychology of the investor buyers at ICON ? And who is paying the $350/sf and more in presales to get the Rhythm started ? Real buyers or more investors ? That project is very thinly amenitized and offers the same basic package as ICON, Encore and the V, but also with all the sports bars you can stand. If the market for the others stabilizes at $300/sf how will this one do when finished and how likely are folks there to close if they're as under water as some of the initial V resale buyers are today ? The 75 unit project behind Walgreens, The West End, is another disaster in the making IMO. Despite being only a few months from completion they've still sold only a handful of units but (like those stubborn V investors) they're still holding out for almost $380/sf. Eventually, the interest clock and reality will set in there too and that developer will find himself having to discount heavily to move his very large units. I feel sorry for the early buyers that will be ahead of these likely price cuts and discounts but I guess that's all just part of how the market ultimately finds its sea legs. And then there is ST. None of us know for sure what will happen there but it seems obvious to me that at the end of the month Tony is unlikely to have more than 100 contracts. Given that his prospects for financing would probably still be shaky if he had the 260 sold units he thinks he needs I'll be surpised if he really puts up the hail mary and starts digging. In any event, if ST gets cancelled for one reason or another I think this will also add significantly to the negative buyer psychology in the condo market.

[producer2]

Actually I just think you are doing your typical making a mountain out of a mole hill.Most people are far smarter than you give them credit for and like many of them as an investor and resident of downtown I am still very bullish on the prospects. Again it is not a playground for the timid and flipping quickly comes with risks, but to paint the picture that long term prognosis is gloomy is pure speculation with not many backers of that thought process.

[Jeeper12]

Fair enough. We can agree to disagree but I didn't paint the long term prospects gloomy at all. I'm quite bulllish on Nashville's real estate market long term but I don't consider the next 6-18 months as being "long term", nor do most "long term investors" IMO. I think it's quite possible to see short term problems (as I do), particulary with a small segment of the market like downtown condos, without being necessarily being negative about the market in general, especially over the next 3-5 years. FWIW I think the single family market will continue to remain steady in good areas though the pace of sales and price increases may be more moderate than in '04, '05 & '06.

You can paint me as a cynic if you like but I'm actually quite optimistic about the condo buying opportunities likely to present themselves in the near term. I think condo buyers will have incredible opportunities to get great deals if they can be patient enough to hang in there until next summer or fall.

And to your point about not giving people credit for being savy I guess I'd have to say that I think some people are and some are not. Obviously, some early V resale buyers got a little carried away and overpaid. The original buyers (like you) paid much less of course ($260-$280/sf) but as we all know, some ICON purchasers and recent buyers of both Encore and particularly Rythm have been paying upwards of $350/sf sight unseen. Whether that turns out to be wise remains to be seen. I think what I said on this thread in January still holds today:

On Jan 12 2007, 10:17 AM Post #203 Jeeper12 wrote:

...In the long run any imbalance or dislocation will sort itself out. Banks that are too aggressive (too few presales, too small of a deposit req'mt, poor borrower track record, etc) will be forced to write down big loans. Developers that move ahead on shaky projects (too few presales, too small deposits, poor designs, etc) will lose their equity and that of their partners. Unsophisticated flippers will make money despite themselves early in the cycle and be slaughtered like lambs later in the cylce when mistakes (location, floorplans, pricing, building quality) are more costly to returns (read: real buyers eventually become more choosy and discerning than speculators playing with house money were)....

Investors are a necessary component of the equation. Sharp investor buyers understand floorplans, location and interior and exterior building characteristics and, more importantly, how all of these components influence prices to end users...and they do their homework. On the other hand, very low deposit requirements tempt too many inexperienced players to join in and too much of this always eventually leads to instability that disrupts what would otherwise be a steady rise of well designed, fairly priced projects (read: equilibrium) for years to come.

[monsoon]

..... but to paint the picture that long term prognosis is gloomy is pure speculation with not many backers of that thought process.