Like many major cities across the country, the Nashville metro area real estate market has cooled considerably over the past six months. Once considered one of the hottest housing markets in the country, Nashville is now experiencing a major slowdown in home-buying activity, along with sustained inventory growth.
What does this mean for 2023?
Among other things, it means we could see something resembling a buyer’s market in Nashville in 2023. Local real estate conditions continue to shift in a more buyer-friendly direction, as we approach the end of 2022. And this will likely continue for the foreseeable future.
Inventory Growth in the Nashville Housing Market
Earlier this month, researchers from realtor.com published a housing market update with data for the nation’s 50 largest metro areas. According to that report, the Nashville-Davidson-Murfreesboro metropolitan area housing market had the third highest increase in property listings over the past year.
In October 2022, the total number of active property listings within the metro area increased by a whopping 145%. To put it differently, the total number of homes for sale in the Nashville real estate market more than doubled over the past 12 months.
To quote the November 2022 Realtor.com report:
“Among the 50 largest U.S. metros, 42 markets posted yearly active inventory gains in October, led by Phoenix(+173.9%), Raleigh, N.C. (+167.4%) and Nashville, Tenn. (+145.0%).”
Granted, supply levels are still relatively low from a historical standpoint. But there is clearly a shift taking place, as more and more homes come onto the market.
Inventory levels bottomed out at the end of 2021, following a COVID-fueled surge in home-buying activity. Nashville was one of the pandemic “boom towns” that experienced an influx of buyers from other parts of the country. As a result, supply levels plummeted and home prices rose like never before.
But now, higher prices and mortgage rates have slowed the real estate market in Nashville and across the nation. The short version is there are fewer buyers in the market who can actually afford to make a purchase these days. This has reduced demand and caused the local real estate market to decelerate.
If inventory growth continues into 2023, the market could shift in favor of buyers even more. In fact, we could see something resembling a buyer’s real estate market in the Nashville area within the next year or so.
According to the latest data from Zillow, the median home value in the Nashville area rose above $450,000 recently – and for the first time ever. When measured monthly, however, home prices across the metro area have actually dipped slightly over the past couple of months.
Some analysts expect to see a significant decline in home prices within the Nashville real estate market. According to an article by Fortune published earlier this week:
“Regionally, researchers acknowledge that shifts in home prices vary significantly by market. In bubbly markets like Boise and Nashville, Moody’s forecasts a decline of around 20%.”
That might be an overly bearish prediction. Due to the current supply-and-demand situation within the Nashville real estate market, we would be surprised to see home prices drop that far over the next couple of years. But a downturn of some degree seems likely at this point.
More importantly, falling prices tend to create a kind of snowball effect within a local real estate market.
When buyers get a sense that the market is depreciating, they tend to become wary of making a purchase. This reduces demand, which causes inventory to accumulate, which leads to further cooling in the real estate market. It’s a pattern we have seen many times in the past, and it usually follows a period of rapid growth like the one we’ve just exited.
It’s Taking Longer to Sell a Home These Days
In May of this year, homes listed for sale within the Nashville metro area spent a median of 17 days on the market. But as of last month, the median number of “days on market” had increased to 39 days. This means the real estate scene is slowing down, and it’s taking longer for sellers to find buyers.
All of these things are connected. Higher prices and mortgage rates have shrunk the pool of buyers, which leads to fewer and slower home sales. That’s the current state of the real estate market here, and in many other cities across the U.S.
The Nashville-area housing market has also experienced a sharp increase in the percentage of price reductions. A price reduction occurs when a homeowner initially lists a property at one price, but later lowers the price due to a lack of offers. An increase in these reductions provides further evidence that the real estate market is cooling.
A Nashville Buyer’s Market in 2023?
Real estate markets are driven by two major forces. Supply and demand. And the Nashville housing market has experienced a major shift on both sides of the equation.
- On the supply side, more and more homes have been coming onto the market lately. This reduces the competition among buyers while putting more pressure on sellers.
- On the demand side, higher housing costs, economic concerns, and other factors have caused some buyers to take a “wait-and-see approach.”
These and other trends could cause a significant and ongoing shift within the Nashville real estate market, as we move into 2023. Like many formerly red-hot housing scenes, this metro area might begin to resemble a buyer’s market in the near future.
By Brandon Cornett | Home Buying Institute