Nashville-area rent down for first time in 7 years as housing market retracts

Sandy Mazza | The Tennessean

Show Caption Hide Caption Nashville Housing Bubble As the supply of affordable homes dries up and more expensive homes sit unsold, many wonder if the city’s frenzied growth has inflated prices to an unsustainable level.

Apartment rents in the Nashville area dropped in July after nearly seven years of continuous upward growth, and the for-sale housing market's sizzling post-recession prosperity chilled.

The slowdown is a welcome relief to renters and buyers weary of the seemingly boundless boom that has outpaced wages and rapidly inflated home prices to nearly double their 2012 values.

"I’m happy to see that the buyer market is getting a little bit of leverage," said Jeff Checko, a Realtor with RE/MAX Advantage. "Sellers have been too big for their britches. The market is pushing back a little on that."

Experts say this doesn't point to an end to the region's upward mobility. Zillow still ranks the Nashville area as one of the top 10 "hottest housing markets" in the country and housing prices are increasing, though at a slower rate than in recent years.

The downtrend is likely a market correction mirrored in cities across the nation, rather than the beginning of an economic slump.

"We're seeing the same pattern in Nashville in markets like Denver, Seattle and Los Angeles," said Aaron Terrazas, senior economist at Zillow. "It's slowing down. But it's still, in many cases, above the historic pace."

More apartments opening

Median rent in Nashville was $1,490 in July – just $4 less than in July 2017, according to Zillow. But the downturn comes after seven years of significant consecutive rent hikes and feverish construction of thousands of new units.

Five new apartment complexes delivered 1,200 rental units and condos to the urban core this year, loosening the tight supply and decreasing demand, according to Nashville Downtown Partnership, a nonprofit firm dedicated to boosting downtown business.

Seven new apartment buildings are now in the works with 1,864 units expected to open incrementally through 2020. Those may come online at a slower pace, since demand has diminished a bit.

"The latest supply of market-rate units delivered downtown has caused downward pressure on rates," Nashville Downtown Partnership said in its July residential report. "The Nashville MSA is still under-built with apartments, and can absorb 13,800 more units by 2020."

Demand rising for cheaper homes

Unlike Nashville rents, home prices increased in the second quarter of this year. But those prices inched upward at their slowest pace since late 2015, according to the most recently available data compiled by Zillow.

The average rate of housing-price increases has declined steadily since mid-2017, following six years of consecutive growth. Still, prices were 10.3 percent higher in July than they were the year before.

"Home value appreciation last spring and summer was growing very quickly," Terrazas said. "It's slowing down but it's still very fast any way you look at it."

The median home price in the greater Nashville area matched the national average of about $250,000 in July, according to several data reports.

The national housing market is experiencing a similar trend. Rising interest rates and a growing affordability gap – with wage increases dragging behind housing cost hikes for years – stalled sales of new, higher-priced homes in July.

In the greater Nashville market, homes listed for less than $300,000 in Rutherford County increased in value while higher-ticket options in Williamson County saw price declines this year, Checko said.

"It's difficult to pinpoint the exact cause but certainly the recipe would include a climate of rising interest rates, overzealous sellers, and more inventory," he said.

There are 31.3 percent more homes for sale in this quarter than during the same period last year, according to a Zillow analysis of the Nashville market.

Interest rates are expected to continue to increase slightly into next year, though they remain at historically low levels.

Nashville's housing market is widely expected to remain strong.

"In the short term, prices move around a lot," said real-estate developer Bert Matthews. "I have two children who are looking to buy their first houses and they keep asking me when prices are going to go down so they can afford something. Just like with the stock market, nobody is an expert in real-estate market timing. I would never bet against Nashville in the long run."