Grant Hammond - Nashville Homes

Despite the Federal Reserve's campaign to lower Nashville mortgage rates, Freddie Mac reports a jump in the 30-year fixed rate to 5.25% in the week ended February 5 from 5.10% the prior week. Experts say home-loan interest is on the rise because long-term Treasury bond yields have climbed and because mortgage lenders are upping rates to ease the flood of refinancing applications.

Maybe it is just me, but maybe these lenders should appreciate the fact that consumers are willing to refinance with them at all. Refinancing your mortgage can stave off foreclosures, auctions and general price decline. I thought that they were in the business of protecting their investments...hummm, maybe your lender is the problem and not your home.

In response to how popular my post regarding the 12 bold predictions for the 2009 Nashville real estate market was with my readers, I have been asked to pontificate on when rest of the US markets might turn around. We'll, I have taken your requests to heart and dove into a huge number of publications, predictions and have only been able to conclude the following:

#1: What a mess - I mean seriously. No publication or online news journal seems to agree and it's almost like we have a two party system in real estate (the industry versus the consumer). It is the industry's job to take the facts and paint a rosy picture and it's the consumer and consumers' advocates job to take the facts and spin them in favor of the consumer. I could write a whole blog post about this first point, but the real estate facts are the real estate facts. It's simple; money buys real estate, people either have it or they do not, then they decide rather or not to pay or accept that money for what they have or want...a free market economy at its best people!! Obviously there are a massive number of factors that affect these decisions, the supply and the market, but boil it all down and it is a human decision that involves an exchange of monies for a product created within the real estate industry.

#2: Yes it's bad, but not that bad. Parts of the US has been dealing with a real estate decline for more than 3 years and the rest of the country is certainly at least finishing up their first year. As such, a lot of builders have stopped building or someone has stopped them from building. Now take into account that the US population is still increasing year over year. What this means to me is that the "Housing Want" factor is now greater than it was just a year ago. BUT, the need and certainly the ability to fulfill that want has greatly diminished since the record purchase highs seen just 2 years ago. This is obviously a result of the current financial woes and "credit crunch" being experienced nationwide. It does not matter what industry you are in (well, maybe not those dirty bankruptcy Lawyers), you are most likely feeling the trickle down effect of the loss of wealth.

#3: How will it turn around? The answer is a set of simple equations: want/need + ability = demand. When demand begins to increase faster than supply, we have a "turnaround" (let me be clear, a turnaround does mean that prices start going back up, it just means exactly what the formula states). When demand equals supply, we have price stabilization, normal market appreciation and a "healthy" market. When demand is greater than the supply, we have price spikes and housing shortages.

#4: When will the markets turn around? Now here are the BOLD predictions most of you are looking for! In most markets in the US, it will get worse before it gets better. Banks need to clear the toxic assets and just plain bad REO from the books and that will most likely happen between now and mid Q2 2009. All markets will have buyers for this property, the only difference being the price paid. So, in the good markets, the price stabilization will occur much faster than in the worse off markets. What differentiates a good market from a bad market? Population trends, income, unemployment, supply and all of the other wonderful statistics that you have all read so I won't rehash here. So, using the simple formulas and the simple capital market theories:

Good markets will turn around no later than Q2 2009, if they have not already turned around already (and some have including Nashville). Prices in these markets may not begin rising for another year, but property will be moving and changing hands.

Okay markets will also turn around in 2009, mostly by mid Q3. Prices in these markets will generally continue to be soft for the next 12-18 months, but property is moving.

Bad markets, and I'm talking about the few fundamentally unsound markets (you know who you are), are still in trouble. A turnaround is probably not coming in 2009 without divine intervention or a government bailout for that matter. Don't fret, you're going to be just fine by 2010 so hold fast, keep your heads down and persevere; after all that's what we Americans do. If you need help, let people know that you need help. Call the bank or mortgage company and start a dialogue for God's sake!!

Take this advice for all its worth, do your own research and remember this EXTREMELY important fact: The American dream is to become a home owner. This dream has not changed and it probably never will.

Note - this is a residential markets prediction, not a commercial real estate prediction. Also, I am just one man in one market trying to make sense of this world.

One of the many tasks my clients expect me to be able to do is to predict what is going to happen with home prices, appraisal values, and time on the market. I only wish that I had a crystal ball to be able to advise them 100% accurately, but unfortunately, that tool does not exist. However, I would like to take a crack at predicting the 2009 real estate market in Nashville based upon aggregated information collected from dozens of trusted sources.

Prediction #1: I believe that the record will show that the Nashville real estate market actually hit a price bottom in mid to late 2008.

Prediction #2: The rate of home sales will increase dramatically by summer of 2009, but not make a full recovery until 2010.

Prediction #3: Mortgage rates will continue to soften and the 30 year fixed rate will hover around the 5% mark.

Prediction #4: There will be a barrage of foreclosures in the first and second quarters of 2009, but there will also be buyers in the secondary market who will snap these up without hesitation.

Prediction #5: Approximately 33% of the custom builders will be out of business by the end of 2009.

Prediction #6: Several large developers will unexpectedly go bankrupt.

Prediction #7: 1 large regional back and 2-4 local banks will cease to do business in Middle Tennessee.

Prediction #8: Rental rates and rental occupancy rates will continue to fall slightly until they stabilize and then turn upward in the September to October months.

Prediction #9: The price for finished lots will take a thrashing and several "Real Estate Vulture Funds" will acquire large groups of these lots. In turn, they will make a killing on the resale of these lots within 2 years of their purchase.

Prediction #10: The value of commercial real estate, especially retail space, will take a massive beating worse than the S&L crisis in the 1980's.

Prediction #11: Despite the predictions above, 2009 will produce a healthier market than did 2008.

BOLD Prediction #12: In 2010 parts of Nashville (Brentwood, Green Hills, Forest Hills, Oak Hill, and a few others) will experience extreme shortages in both land and homes. Prices will temporarily skyrocket and quite a few folks will make handsome profits on property they acquired during very early 2009.

Obviously, we have been wrong before, but if you research the past 4 years of predictions from this blog, you will find that we are correct more than 75% of the time. Happy Turkey Day to everyone and have a safe holiday weekend.

I suppose I knew it was inevitable, but somehow it still hurts. Developer Tony Giarratana has announced deep discounts on their remaining condos in the Encore.

From Chas Sisk and the Tennessean on November 24, 2008:

"...Tony Giarratana and partner Novare Group's plan to offer deep discounts on units in their Encore condominium high-rise on Demonbreun Street. The two have slashed prices by $30,000 on some one-bedroom units in the building and $50,000 on some two-bedroom units. (...) The program officially runs through the end of the year. But with condo sales down sharply, Giarratana said in an interview last week that extending it into 2009 is not out of the question."

The next crucial question is: what will happen with the outstanding buyers who have held out by delaying closing for more than 6 month? I suppose this answer will be forthcoming in the coming months, but I am guessing that the developers will have to cave to market pressures and reduce prices for these folks.

My final question is: What happens to those who have already closed? That was the risk in closing...the market bears what the market bears.

Going forward? I don't know about you, but I am in the "wait and see" mode. Why? Let me quote the old adage, "Fool me once, shame on you. Fool me twice, shame on me." I suppose the Nashville condo rush is officially over.