Nashville-area home sales drop 25%
Despite slump, prices have increased, flooding market with unsold homes
By CHAS SISK
Staff Writer
The real estate market has slowed, but try using that to bargain with Nashville’s home sellers.
Home prices eked out a 2 percent gain in September, even though sales experienced their sharpest decline since 1991 last month, as sellers continued to hold out for more money despite a dramatically slower market.
The disconnect between rising prices and falling sales indicates a gap has developed between buyers and sellers that is driving up inventories of unsold homes, said real estate agents and observers. That could prolong the correction that is working its way through the local real estate market.
“The more prices go up, the longer it’s going to take to absorb that surplus housing,” said David Penn, director of the Business and Economic Research Center at Middle Tennessee State University.
A total of 2,587 single-family homes, condos, multifamily buildings, farms and lots were sold in September in the nine-county area tracked by the Greater Nashville Association of Realtors.
That represents the weakest September in five years, real estate data show. The decline of 25 percent year-over-year was the sharpest drop since January 1990 to January 1991, when a recession helped push sales down 35 percent here.
The most recent sales figures are down from the 3,455 homes sold in September 2006, a near-record level for the month, the Realtors group said.
Other signs look good
The drop comes even though Middle Tennessee’s economy appears to be strong. The area is growing by more than 2 percent a year, and unemployment stands at 3.5 percent, more than one full percentage point less than the nation as a whole.
Mortgage rates also have been favorable. The average quote on a 30-year, fixed-rate mortgage at the end of September was 6.32 percent, according to the Mortgage Bankers Association of America.
“In ‘91, all the trends were negative, and in this case … all the trends are stable and up,” said Richard Courtney, the GNAR’s president. “I think it (the slowdown in sales) does have something to do with pricing, and houses need to be in better condition. Last year, if a house needed a new kitchen, it would sell and the buyers would put in a new kitchen.”
Prices inch up in a year
Meanwhile, the median price for a single-family home in the region inched up to $182,291, about $3,400 more than in the same month a year ago. Condo prices rose 5.6 percent to $162,500.
The rise in the single-family median was the smallest year-over-year increase since August 2004. But it indicates that many sellers are still asking for the sizable markups they had come to expect before the real estate market began to slow a year ago, real estate agents and other industry professionals said.
“It depends on your inclination to sell,” said David Lafferty, an appraiser and senior partner in The Caldwell Group in Franklin. “Do you really need to sell your house, or do you want to put it out there at a high price and it not?”
The gap between buyers and sellers has contributed to a significant expansion in inventory. At the end of September, 22,821 homes were on the market, about two-thirds more than at the market’s peak two years ago.
At current sales rates, it would take more than eight months to sell every home.
But that’s still better than many parts of the country, said Mitzi Spann, president of the Home Builders Association of Middle Tennessee.
“I look forward to a turnaround in the spring or the fall at the latest,” she said.
Some homebuilders have cut prices to deal with the high inventory level, but many are attracting buyers through incentives, such as paying closing costs, that do not show up in the purchase price.
Credit tightening a factor
Another factor dragging down the market could be tighter credit standards. A year ago, buyers with poor credit or those who needed large sums could get a loan that would quickly be resold to investors on Wall Street.
Now, most Wall Street firms are refusing to invest in anything other than the safest of borrowers, forcing banks to find new ways to structure home loans, said Gayle Kindig, Regions Bank’s Middle Tennessee area manager for mortgage banking.
Local buyers also may be heeding the advice of financial experts who recommend staying away from the market until it stabilizes, Courtney said.
“There is some fence-sitting,” he said. “They watch the national news.”