For People Who Ask Why the Nashville Real Estate Market is So Competitive

Also Why Murfreesboro, Clarksville, Gallatin, Lebanon, Franklin, Spring Hill, Columbia, and Mt Juliet Are Hot, Too!

I remember the first two houses I helped my clients buy over fifteen years ago in East Nashville. The first sold for $69,200 and the second for $82,100. Both were single-family, pleasantly livable homes in the 37206 zip code. That was back in 2004 when I had been licensed for less than six months. The next house I sold cost $222,900 on Woodmont Blvd. I was blown away by how high that price was.

So Many People!

Since my first three sweet clients bought their first houses the population of Nashville has exploded– it went from 581,078 in 2004 to an estimated 692,587 in 2018.¹ It’s not only Nashville or Metro Davidson County but the surrounding counties also. Nine of the ten fastest growing cities in Tennessee are in Middle Tennessee. They are Murfreesboro, Clarksville, Nashville-Davidson County, Gallatin, Lebanon, Franklin, Spring Hill, Columbia, and Mt Juliet.² Adjoining and surrounding counties are building schools and infrastructure to try to keep up with this rapid population growth.

As the population of Middle Tennessee has grown so has the demand for housing. This has created new opportunities for everyone in the housing industry, from carpenters and plumbers to national builders. All over Nashville and the surrounding cities people are renovating existing houses and building new houses, apartments, and condominiums.

Where Will They Go?

All of this demand has also driven up purchase prices. Greater Nashville REALTORS® (GNR) tracks data related to residential sales in Davidson, Cheatham, Dickson, Maury, Robertson, Rutherford, Sumner, Williamson and Wilson counties. A statistic that highlights the growth we are seeing is that in 2011 this area had 20,606 residential closings.³ In 2018 GNR tracked 39,959 sales.⁴ The median price of a home went from $168,500 in 2011 to $308,000 in 2018. For condominiums it went from $140,062 to $222,000.⁵

Finding something affordable for first time buyers and people relocating to the area often requires flexibility and hard work for everyone involved. In my initial Buyer meetings we still cover the basics of how mortgages work and all the steps for buying a house. However, instead of setting up a day to see seven-ten houses and then another day to revisit the top three, we talk about how to see an available house on the first day it is listed or before it is ever advertised. We talk about writing an offer a Seller will accept as written and strategies for when your offer is one of many an owner has received.

Besides strategizing on how to move quickly and stand out in multiple offers, we talk about commutes–where the Buyer works, how far they drive to work now, where their kids go to school, and how busy the interstates are at the start of their workday. After price, the commute time is often the biggest factor in a home search. People’s searches include how far a drive it is to a main road, how many alternate routes are available, what interstates they want to avoid, or what exits they don’t want to go beyond.

Location x 3

All this to say, there is a premium on location. Time equals freedom, and long commutes just add to the time that work takes from what could be family, fun, rest, or sleep time.

When people really contemplate their commute times they inevitably put a premium on their proximity to work. That creates demand in urban neighborhoods. As internet searches have grown and become more sophisticated, I see many clients foregoing the typical list of neighborhoods or school zones they want and instead drawing a radius from their workplace.

Ouch!

We’re all one happy growing family of Middle Tennessee residents enjoying all the new grocery stores and restaurants until you talk about the loss of affordable housing, rising rents, increasing density, “tall-skinnies” (the local euphemism for narrow two or three story homes built where one single-family house used to stand), new school zone boundaries, or potential traffic increases that a new development may bring to a neighborhood. Some neighborhood discussion pages now talk more about zoning changes, fighting developers, and showing up at Planning Meetings than neighborhood cookouts and block parties.

Another perspective on the growth, however, is that existing homeowners in urban areas now have more equity in their homes when they are ready to sell. I love it when clients who bought a few years ago use the equity to buy up into a really cool house, buy something cool in a new city, invest in rental properties, or even start their own business. That is super energizing.

And, knowing the potential for jump in wealth keeps me inspired when someone wants to buy their first home. That first home search is not as easy as it used to be. It’s no longer a day spent seeing ten homes in East Nashville, Sylvan Park, or Hermitage with plenty of time to consider all the options. Instead it is often a one-house-at-a-time rush to see any house that comes available that match a Buyer’s price and location criteria.

When a Buyer doesn’t have a large downpayment from a prior home or family member’s gift, it is up to them to save a downpayment (while paying rising rent), pay closing costs, and then pay a monthly mortgage on the majority of their home’s cost. Rising home prices make it more difficult for the majority of workers to buy their first homes.

Home Price-to-Income Ratios

The study of how home prices line up with incomes is often analyzed with the home price (median) to income (household median) ratio. A rule of thumb is to multiply gross annual income by 2 or 2.5 to get an affordable home. This is separate from debt to income ratios (which take into account interest rates) and monthly housing cost ways of determining affordability. It’s just a quick way to say what home price a broad group of people can afford to purchase (without large gifts or equity from prior homes).

The Joint Center for Housing Studies at Harvard University has a helpful interactive map and graphs for how home prices and incomes line up across the country. It shows the Nashville-Davidson, Franklin, Murfreesboro area being at a ratio of 3.78 in 2017. This is up from 3.04 in 2011 and even 2.85 in 1980.⁶

As Nashville has grown and real estate prices have grown median incomes have not grown at the same pace. 2018 numbers have not been released yet, but 2017 household median incomes in Nashville were $63,939. In 2011 they were $54,605. Those were households and not individuals. The per capita median income has gone from $29,991 in 2011 to $33,875 in 2017.⁷ While individual incomes went up $4,000, and household incomes went up $9,334, the median home price increased by $125,500 ($168,500 in 2011 versus $294,000 in 2017⁸). This is median for the area. Add location pressure due to commute times, and prices in urban neighborhoods and surrounding cities have gone up faster than those for the general region.

The majority of people who want to buy a home in Middle Tennessee face a very competitive, tight market for homes that are in decent condition and within $100,000 of the median home price. Even those people who have already owned a home and want to move that equity into their next house often still have to compete when looking in desirable locations, no matter what their price range.

Wrap-Up

As you maybe can tell these are the kind of issues that keep me thinking. In July I started writing a post about inequality in housing and how affordable housing is interconnected with so many issues that people often dismiss. That initial post has had quite a few drafts with outlines that go on for pages. Here it is August and it has taken me days to whittle it down to this introduction to the rising demand for housing and the pressure those rising prices put on most workers in our city. I’m hoping to expand in later posts. Thank you for reading this far!

Notes

1. World Population Review, “Davidson County Population,” (2019-07-11), Accessed August 21, 2019. http://worldpopulationreview.com/us-counties/tn/davidson-county-population/
2. The University of Tennessee Knoxville, “2018 Population Data Shows State’s Fastest-Growing Cities, Counties Are Mid-State,” (2019-05-30), Accessed August 21, 2019. https://news.utk.edu/2019/05/30/2018-population-data-shows-states-fastest-growing-cities-counties-are-mid-state/
3. Greater Nashville Realtors, “2011 MONTHLY HOME SALES CHART,” Accessed August 21, 2019. https://www.greaternashvillerealtors.org/sales-reports/annual/2011#overlay-context=sales-reports/annual/2012
4. Greater Nashville Realtors, “2018 MONTHLY HOME SALES CHART,” Accessed August 21, 2019. https://www.greaternashvillerealtors.org/sales-reports/annual/2018#overlay-context=marketdata
5. Ibid., Greater Nashville Realtors, 2011 and 2018.
6. Harvard University. Joint Center for Housing Studies, ” Home Price-To-Income Ratios,” Accessed August 21, 2019. https://www.jchs.harvard.edu/home-price-income-ratios
7. Department of Numbers, “Nashville-Davidson–Murfreesboro-Franklin Tennessee Household Income,” Accessed August 21, 2019. https://www.deptofnumbers.com/income/tennessee/nashville/
8. Greater Nashville Realtors, “2017 MONTHLY HOME SALES CHART,” Accessed August 21, 2019. https://www.greaternashvillerealtors.org/sales-reports/annual/2017#overlay-context=user