Real estate: What goes around will come around again
The Tennessean• May 21, 2008
It is that time of the month again and the Greater Nashville Association of Realtors has released its April sales numbers.
Once again, prices increased and unit sales dropped.
In April of 2008, unit sales were down 28% as compared to the number of units sold in 2007. Having read a blog or two lately concerning the reporting of the sales data, I have learned that, at this point, I should inform the readers that a drop of 28 percent is not a good thing. I understand that.
An increase would be good; decreases are bad. Got it.
Last month I noted that February's sales were higher than those of January, and March's higher than February.
Once again, I failed to mention that those increases are consistent with the sales every year for the last 13 years. Now, the May pending sales are down somewhat from April. Once again, that occurs every year.
What I missed the opportunity to mention is that when sales trend in a manner similar to the year before that and the year prior to that, then that is a good thing.
When trends continue, it reflects stability.
The market is not in chaos or peril. It is smaller. It has contracted.
Current unit sales numbers are quite similar to 2001.
Based on the historical data that shows that the Greater Nashville area sales increase in a normal economy approximately 4 to 6 percent per year, the chances are that the area will not see 2006 sales in 2009, not in 2010, not in, 2011, maybe not even 2012.
It is worth noting that 2001 was a record year, the most sales ever.
Then, from 2002 through 2006, there was record growth each year. If that growth continued, Pulaski would soon be a suburb.
The Nashville real estate market should catch its own tail in September, as September 2007 was the first month since 1991 that sales dropped over 20 percent from the same month the previous year.
Then, the area could post minimal gains, maybe 1 percent or 2 percent for until the end the year.
Remember, if sales in October 2008 increase 2 percent over October of 2007, that translates to a 22 percent drop from 2006. But, seeing the positive growth makes everyone feel better, consumer confidence, they call it.
So, in 2009, sales will be up 3 percent or 4 percent, and the market will have turned around.
I know the numbers will be less than 2006, 2005, 2004 and maybe 2003. However, the conditions that prevail today in the Nashville market define the Nashville market. It is smaller than it was.
And, we know why.
The reason is sub-prime mortgages. No one is looking through rose-colored glasses now.
Those tinted glasses produced the spectacle known as 2005 and 2006, when lenders, Realtors, title companies, inspectors, not to mention buyers and sellers, witnessed the impossible. Buyers with no cash and bad credit bought houses. It felt great at the time.
Now, lenders have tightened their respective belts, and it is painful. But watch what unfolds. In 2009, the market gains strength and the lenders hold firm.
In 2010, more sales increases, and it begins to feel like 2005. In 2011, everything is great, so the lenders relax the standards somewhat because they do not need to be as tight because prices are rising and the market stable.
In 2012, lenders lend more than the value of homes again and the market revels in joy for 2013 and 2014.
Then in 2015, it hits the fan again.
Darn cycles.
The Tennessean• May 21, 2008
It is that time of the month again and the Greater Nashville Association of Realtors has released its April sales numbers.
Once again, prices increased and unit sales dropped.
In April of 2008, unit sales were down 28% as compared to the number of units sold in 2007. Having read a blog or two lately concerning the reporting of the sales data, I have learned that, at this point, I should inform the readers that a drop of 28 percent is not a good thing. I understand that.
An increase would be good; decreases are bad. Got it.
Last month I noted that February's sales were higher than those of January, and March's higher than February.
Once again, I failed to mention that those increases are consistent with the sales every year for the last 13 years. Now, the May pending sales are down somewhat from April. Once again, that occurs every year.
What I missed the opportunity to mention is that when sales trend in a manner similar to the year before that and the year prior to that, then that is a good thing.
When trends continue, it reflects stability.
The market is not in chaos or peril. It is smaller. It has contracted.
Current unit sales numbers are quite similar to 2001.
Based on the historical data that shows that the Greater Nashville area sales increase in a normal economy approximately 4 to 6 percent per year, the chances are that the area will not see 2006 sales in 2009, not in 2010, not in, 2011, maybe not even 2012.
It is worth noting that 2001 was a record year, the most sales ever.
Then, from 2002 through 2006, there was record growth each year. If that growth continued, Pulaski would soon be a suburb.
The Nashville real estate market should catch its own tail in September, as September 2007 was the first month since 1991 that sales dropped over 20 percent from the same month the previous year.
Then, the area could post minimal gains, maybe 1 percent or 2 percent for until the end the year.
Remember, if sales in October 2008 increase 2 percent over October of 2007, that translates to a 22 percent drop from 2006. But, seeing the positive growth makes everyone feel better, consumer confidence, they call it.
So, in 2009, sales will be up 3 percent or 4 percent, and the market will have turned around.
I know the numbers will be less than 2006, 2005, 2004 and maybe 2003. However, the conditions that prevail today in the Nashville market define the Nashville market. It is smaller than it was.
And, we know why.
The reason is sub-prime mortgages. No one is looking through rose-colored glasses now.
Those tinted glasses produced the spectacle known as 2005 and 2006, when lenders, Realtors, title companies, inspectors, not to mention buyers and sellers, witnessed the impossible. Buyers with no cash and bad credit bought houses. It felt great at the time.
Now, lenders have tightened their respective belts, and it is painful. But watch what unfolds. In 2009, the market gains strength and the lenders hold firm.
In 2010, more sales increases, and it begins to feel like 2005. In 2011, everything is great, so the lenders relax the standards somewhat because they do not need to be as tight because prices are rising and the market stable.
In 2012, lenders lend more than the value of homes again and the market revels in joy for 2013 and 2014.
Then in 2015, it hits the fan again.
Darn cycles.
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