The Residential Report

Sales & Prices Up - Inventory Down

Volume X, Number 1

February 2005

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Richard Exton @ 615-383-8751 or E-Mail richard@exton.biz

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   Nashville’s residential real estate market was at record levels for sales volume in 2004.  There were 36,496 closings (including residential, condominium, multi-family, and land) reported through year end, which is up 14.4 percent over the 31,855 closings reported in 2003.  This was matched with a 13.0% decline in inventory from 14,097 at year end 2003 to 12,258 at the end of 2004 for all property types listed in the regional multiple listing service.

   Increases in sales rates and declining inventory, coupled with comparatively low interest rates during the peak summer selling period lead to demand driven price appreciation in many Nashville and Williamson County neighborhoods.  This is evidenced by general improvements in rates of value change in many of the areas studied.  Historically, rates of change in property values have followed a stair step pattern, with stable markets following periods of higher appreciation.

    Belle Meade saw an exceptional rate of appreciation, following only modest appreciation in 2003.  The Belle Meade market reflects the upper end of the price range in Middle Tennessee.  Two factors impacting the rate of appreciation in Belle Meade.  The first was the improving overall economy in 2004.  The economic strength in 2004 and the weakness 2003 had its greatest impact on those who can afford homes in the Belle Meade price range.  The second factor is the inventory of homes at the upper price ranges.  As of 1/13/2005 there were 90 homes offered in MLS between one and two million dollars, with 20 acres or less.  There were 93 sales in that price range in 2004. That would equate to an 11.6 month inventory.  While that inventory is high, it is a modest decline from prior years.

   An additional factor affecting the market in Belle Meade, Green Hills, and West Meade is the demand for building sites.  Teardowns continue to be common in Belle Meade, and are significantly more common in West Meade and Green Hills.  Demand for building sites is impacting the lower end of the market in these neighborhoods, by setting a lower limit on pricing regardless of size or condition.

    The jobless recovery is the primary factor that limited appreciation in more modest priced areas in 2004.  These areas had rebounded in 2003 from declines in 2002.  In these areas the majority of sellers assist the purchaser by paying some or all of the closing costs.  These costs are typically reflected in a higher than market sales price.  While a portion of the appreciation is due to inflation, a significant portion can be attributed to the seller paying closing costs.

   The penchant for buyers to demand or expect seller paid closings costs has been expanding both in loan type and price range. It is not unusual for homes that have been on the market for a while to sell for in excess of the list price, as these costs are added to the purchase price.  A few years ago this practice was limited to FHA and VA loans and to the most modest priced homes.  Now buyers are negotiating seller paid closing costs for conventional loans and at higher price levels.

   NOTE:  Not all areas or sales were studied; statistical samples vary by area.  The information in this study is general; it is intended as a guide. Each property should be considered individually through an appraisal or comparative market analysis in order to estimate its market value. 

Continues on Page 2, including Rates of Value Change, Methodology and Examples 

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