State of Play in the Real Estate Market & What's up in Nashville!

Welcome to A Skeptical Dude’s Take on Real Estate: a frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.

Coming at you live from Nashville, TN.

Fuel for the day: a rich English Breakfast Tea Classic.

A little caffeine loosens the tongue (and fingers). So while I’m at it, do you garden? I do. And, tea in hand, just finished watering my tomatoes, and greens, which I planted in up-cycled coconut husks instead of getting soil. These things are amazing! Comes in bricks, is way cheaper than my potting mix + holds the moisture better. I just add some liquid kelp for nutrients. Great for garden beds. Spoiler, watching it expand when you water it is absolutely mesmerizing. Don’t click this.

Today We’re Talkin:

• - The Weekly 3 - News, Data and Education.
• - Housing Market State of Play
• - 2025 Housing Market Predictions
• - Large Institutions are NOT the Cause for Home Prices Rising
• - What’s Developing in Nashville???
• - The Skeptics Take.

The Weekly 3: News, Data and Education to Keep You Informed

1. - Less than 6% of renters can afford a median-priced home in the US. Gosh, we need more supply growing policies, not demand (Yahoo).
2. ----Side note, it should be fewer not less. But I digress…
3. 
   
4. - KKR’s $2.1 billion deal to buy 5,200 apartment units from Lennar. This will not affect home prices or rents any more than regular people buying homes will (Parsons)
5. ----Bonus * Did you know Amazon had a Discount Section??? How am I just discovering this? Watch out delivery man, you better hit the gym.
6. 
   
7. - Book Recommendation: The Four Hour Workweek. I just reread this life-changing book on starting your business/new life, and if you haven’t, well now is the time. Warning. If you like your job, do not read. It’s mind-bending (Ferris).

   
   
   

Today’s Interest Rate: 7.03%

(☝️ .01%, from this time last week, 30-yr mortgage)

Lots of housing data, predictions and asset type predilections this last week. So I thought it time to take a quick accounting of what folks in the industry are seeing in the housing market. + some cool developments in Nashville. (Yes I’m a homer :).

Let’s get after it…

Housing Market State of Play

Over the last 30 days (ending June 16) pending home sales fell 3.8%. Last monthpending sales were down 4%, so a slight improvement in % YoY in May but total sales fell to the lowest level in 4 months. RedFin has a decent report out, which we will run through.

It’s important to note that there are still many many homes selling each and every day. And that this decrease is slight from 2023. Moreover, the 2022, 2021 data lines in the chart need to be thrown out. COVID-era housing data is not a valuable data set, IMO. None of the above data suggest a serious problem; yet. In fact, we are right about at May 2019 pending home sales levels.

Continuing the forward look from Pending Sales, also notes that its Homebuyer Demand Index, which is a measurement of home tour requests, declined 17% YoY to February levels. That is meaningful for future home demand this Summer, and the rest of 2024. February / winter showings are always low, so being at that level now is noteworthy.

Housing Supply is Low, but Inventory Growing.

We still do not have enough housing supply. Not even close.

How short are we? New research shows we are 2.2 million homes short of where we need to be (NDR). I like to put it this way to clients. We are still not recovered from the post Great Financial Crisis under-building of homes. We went from overbuilding leading up to 2007, to a decade of under-building. Developers and banks don’t want to get caught offsides again, and who would blame them. A highly restrictive monetary climate by the Fed, as well as high labor, environmental, regulatory, land prices (inflation) are compounding this problem in today’s market.

Not to mention insurance, wow.

Anecdotally, my insurance costs are up 20-40% YoY, across my property portfolio. Still not terrible here in TN as in TX, CA, FL, LA, and other high danger zones. But I did re-shop a few policies to make sure I’m not overpaying, which I do every year like my cable TV bill back in the day.

Quick tip folks: Date your insurance provider, never marry them. Or at the very least find a great broker to shop for you. If you are in the South, I use Langer. Good Folks.

New Home Listings Are Historically Few

New listings are up 7.7% YoY, but they’re below “typical levels” for June, the only time on record June listings have been lower was in 2023.

Ok, I’m getting fed up with RedFin charts, which dont look back to at least 2019. New listings are actually ~40k fewer than “normal” 2017, 2018, 2019 levels. These YoY comparable to 2023, 2022 and 2021 are trash. Hey @redfin step your game up.

Fixer Upper and Luxury Homes Sitting on Market

Days on market for homes is creeping up. Anecdotally, “Redfin agents report that most buyers are willing to pay sky-high housing costs only for move-in ready homes in popular neighborhoods.” I agree, and second Anecdote: I am seeing luxury new build / high priced homes sitting longer than expected, mostly in the $2M and above level. Move in ready homes under $1M are selling quick.

And for those homes sitting for longer, 60+ days, we are a little higher than the decade “normal” (2014-2019). Not terrible, and hopefully this is growing a bit.

Certain Markets are Worse, Much Worse

According to RedFin, “The share of inventory sitting on the market for 30-plus days is growing fastest in Dallas. Just over 60% of Dallas listings that were on the market in May had been listed for at least 30 days, up from 53% a year earlier. Next come three Florida metros: Fort Lauderdale (75.5%, up from 68.2%), Tampa (68.7%, up from 61.9%) and Jacksonville (69.2%, up from 62.9%). Inventory is growing stale fast in Texas and Florida largely because those states are building far more homes than anywhere else in the country, contributing to rising supply, and because some homebuyers are nervous about the increasing prevalence of natural disasters.”

Price Drops / Reductions

So what happens when homes sit on the market? Buyers can notch a price reduction. 6.4% of sellers cut their list price last month, the highest share since November 2022 (RedFin). “The share of sellers dropping their list price is at its highest level since November 2022, and asking-price growth has already slowed.”

In my home market of Nashville, the delta from list to sales price is tightening from its wide margins in 2022/2023, and is approaching its more “normal” 2019 measure. Home sales prices in May, as a % of list price, are selling after an average 16% price reduction, as compared to May 2019, which was 11%, at this time

So What About Home Prices? What’s Coming in 2025?

Median sale home prices were up 4.8% to $396,000, with a median monthly mortgage payment of $2,781 at an average mortgage rate of 6.95%. $396k is an all time high (RedFin).

What Coming in 2025?

Here is the latest roundup for what the financial firms and government homebuyers are predicting for 2025. In short, a more measured increase in home prices. Still more than inflation, on average.

Of course, it depends on what market you are investing in. Some markets may see 10%+ growth while others may actually decrease in real pricing terms. Looking back at 2023-2024, here are housing markets that rose and fell the most.

Be wary of the “hypergrowers.” What you want is steady growth and plenty of thoughtful development (see below).

Tangent! - What about Hedge Funds “buying all the homes?” This is the reason we have high home prices!

Not true. Particularly today.

Large institutions are NOT the cause for home prices rising, despite what many politicians are saying in the news, and the doomers on the internet. Here is a great chart from ResiClub showing that institutions sell as much as they are buying. You only hear the buy-side in the news.

How many homes do they own?

2.5%. That is it. And this up trend is trending down (see next charts).

Also, the iBuyers are almost all gone. Most of them failed and are no longer operating.

So as we can see, institutional purchases are very small as a %, and trending down.

And looking at all investor-homeowners, including folks like you and me, we still own about the same % of all homes as we did 2 decades ago. Folks forget just how big the housing market is.

The individual homeowner is still king.

What’s Developing in Nashville?

Ok I know this is a looooong newsletter today BUT I wanted to give an update on all the cool developments happening in Nashville. Let’s take a quick look. (don’t worry it’s mostly pictures).

The Alta at the Levee development (5 stories, 325 units, internal garage) in MetroCenter has a crane up and is beginning construction. Why is this apartment complex interesting?

This is the 46th tower crane erected in Nashville so far in 2024. BOOM.

Nashville International Airport's Concourse D expansion (6 new gates) continues construction. The expansion will cost an additional $1.5 billion will be phased in over six years with an expected completion in late 2028. We are becoming much much larger and international. Say hello to direct flights to my favorite place in the world. The Austrian alps.

Nashville Metro Planning has put out a long range plan for redeveloping the 78 acre Global Mall (formerly Hickory Hollow) site & surrounding neighborhood. Residential, office, retail, cultural, recreational & updated streets/blvds included.

Nashville Yards releases images for The Landings Plaza (south side of 19 acre development) & The Grove (underneath Union Station Hotel & Broadway Viaduct).

The Pinnacle Tower (35 stories/504', 678,000 sq. ft., internal garage) update: Pinnacle Bank signage installation complete on western face. Banks Need Offices Still.

SomeraRoad is preparing to break ground on Paseo South Gulch's second tower, a 30-story high-rise that will offer hotel and condo units. SomeraRoad started Paseo South Gulch with the revitalization of two historic building, and the project has grown to include plans for four ground-up towers.

The 30-story hotel and condo building will offer a pool with a "garden bar" and restaurant.

And last but not least, is this the nicest Hampton Inn ever? The Hampton Inn/Tru Hotel project for 602 9th Ave. S. in Gulch has new renderings. Will be 17 stories/185' fall, featuring 300 rooms between both hotels, w/ ground level retail, rooftop bar, & internal garage. Originally the plan was for 8 stories and 214 rooms

The Skeptics Take:

Whew, ok that was a lot today, if you made it this far. Gold star. In fact, let’s do this. If you reach out to me with the subject line “Gold Star” you’ll get a free real estate investment consultation on how to analyze properties across the 5 ways we make money in real estate (hint: cash flow is one, but it’s the smallest one). Look forward to hearing from you :)

So, what did we learn today? Opportunity for real estate investors is abound! I hope this point came across as you were ruminating on all this data.

The bottom line: Homes that need work or are in B Class areas are going to make a lot of people a lot of money. Anecdotally, I’m scooping up stale properties as fast as I can, to take advantage of decent price reductions. Average price I and my clients are paying is just below 2023 comparable sales.

Now this is a Tale of 2 Cities for sure. The bottom 20% of home prices are selling fast, as are the turn key/renovated homes in the mid-range. But the value add (aka fixer uppers) in B class (and C class) areas are sitting on the market and that’s what I’m targeting. One last anecdote: the high priced / luxury homes are sitting on the market as well. Here is an example: New build, large lot in an A- neighborhood. Sitting for 97 days. Just cut the price another $50k. Nothing wrong, it’s the market.

So make sure you know what you are targeting. Buying right is usually the most important thing in investing.

That’s it for now.

Until next time. Stay curious. Stay skeptical.

Herzliche Grüße,

-Andreas

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If you are interested in talking real estate investing and digging deeper into any of these ideas don’t hesitate to reach out! I always like a rigorous discussion and helping fellow real estate investors.

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* I write this myself and get it out for you all in the same day. Apologize in advance for any typos / syntax errors. Don’t have a team of editors, yet :).

** The preceding has been my opinion only, the views are my own, and are intended for educational and entertainment purposes only and does not constitute financial advice.