Nashville may be known for its booming music scene, but its housing market may be just as strong. In fact, it’s the 12th strongest in the nation, according to the U.S. News Housing Market Index.
That’s despite the hits the market has taken due to rising interest rates, which jumped from just over 3% at the start of 2022 to nearly 7% by year’s end, according to Freddie Mac. In that time, Nashville saw drops in housing permits, home prices and consumer demand, but now, three months into 2023, things are looking more positive.
We used data from the U.S. News Housing Market Index to put together a comprehensive look at these changes, as well as a short-term outlook for the Nashville real estate market in 2023. Keep reading to learn more about where Nashville housing is headed.
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How the Nashville Housing Market Changed in 2022
Housing permits, which usually take between four and nine months to turn into available inventory, saw quite a drop in Nashville in 2022. In March 2022, there were over 2,000 single-family housing starts in the metro, which includes Davidson, Murfreesboro and Franklin. By the end of 2022, that had dropped to just 648.
Things have picked up in the last month, with 900 permits, but it’s too early to tell if it’s a trend or just a blip on the radar. In the last three months, the Nashville market saw 2,497 approved single-family permits. For the same period the year prior, it was 3,896, a whopping 36% more.
Multifamily permit activity has experienced an even larger drop. Nashville has had just 329 multifamily permits approved in the last three months. Compared with the same period the previous year (3,536 permits), that’s a 91% decrease.
Nashville Housing Supply and Demand
Nashville’s supply of for-sale housing bottomed out when rates were low in 2021 and early 2022, but when interest rates reversed course, the winds began to change. Supply increased steadily starting in March 2022 and hasn’t slowed down since. The city’s 4.6-month supply now outperforms the nation’s 3.2 months and has increased 3.27% over the year.
Still, longtime Nashville real estate agent Jeff Checko says, “We’re not sitting on some glut of inventory right now. There was so much product that got absorbed with those really low rates, that we are still recovering from that inventory crunch.”
U.S. Census data shows that rental vacancies in the Nashville metro area were volatile in 2022. At the start of the year, the vacancy rate was a mere 4.4%. By June, it had doubled, hitting 8.8%.
Though metro-level data isn’t available beyond that point, regional data is. As of the fourth quarter, the southern part of the U.S. had a 7.3% vacancy rate — the highest of all four regions. It was also above the national vacancy rate of 5.8%.
On the demand side, things are holding steady. According to the Mortgage Bankers Association, applications to purchase a home in February 2023 were up 1.2% over the year and 4% compared with January.
That tracks with trends in consumer sentiment, which until recently had been trending downward, per the University of Michigan Index of Consumer Sentiment. It’s still down 2.3% compared to the prior year but has made notable jumps in the last few months, rising from a trough of 50 up to 64.9 (on a scale of 1 to 100).
Where it goes from here will largely depend on interest rates, which now clock in well over 6%, up considerably from the 3% rates seen in early 2021. As Checko, an agent with RE/MAX Advantage, explains, “When rate increases hit, we definitely saw buyers drop out of the market. The interest rate climate, for everybody except ultra-luxury buyers that might be paying cash, is such a huge factor.”
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Median Home Price in Nashville
Like many places in the U.S., home prices in Nashville have trended downward since mid-2022, when interest rates saw buyers pull back — and gain more negotiating power. Despite this, the median price still clocks in at 5.5% higher than a year ago — at $421,000, according to Redfin. That’s back to March 2022 levels locally, but still well above the $383,000 national median.
“I think we gave back to the gains that we saw in the first half of 2022 and put ourselves back where things have adjusted back to late 2021/early 2022 pricing,” Checko says. “There’s been a correction, a normalization. You can’t sustain 20% increases for two years in a row and expect that to continue.”
What’s kept prices from falling too far? Checko points to the ongoing supply shortage and consistent demand from the local business scene.
“We’re eternally thankful for our business climate here in Nashville, because it’s what fuels us at a time that when the rest of the country is seeing pretty precipitous drops, we are able to sustain ourselves, if you will, based on inbound relocatees and corporate relocations,” Checko says.
Rising construction costs may keep prices from falling much further, too. The cost to build a home across the nation jumped 12% from January 2022 to January 2023, according to the U.S. Census Bureau. That’s down just barely from its peak.
Nashville rents are on a similar trajectory as home prices, up over 5% compared to the previous year but steadily trending downward, per the Zillow Observed Rent Index. The current median rent (as of December 2022) was $1,856 per month, up from $1,754 one year before.
If vacancies continue to increase (see above), rents could fall further, as landlords will need to incentivize tenants to stand out from the pack.
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Unemployment Trends in Nashville
As Checko mentioned, Nashville has a strong job market. As of December 2022, the U.S. Bureau of Labor Statistics shows 1.15 million people were employed in the metro area last December, up 54,000 (about 5%) compared with a year earlier. At the same time, the nation saw an overall increase of just 2.66%.
Unemployment is also incredibly low in the Nashville market. Only 2.4% of people are unemployed in the region, clocking in below the national rate of 3.5% and giving it one of the lowest unemployment rates in the country. Unemployment dipped 0.01% compared to a year ago.
This low rate of unemployment is likely why foreclosures are so rare in the Nashville metro. Only 0.2% of homes are in foreclosure, according to Black Knight. That’s an increase of 0.1% from the previous year but below the national average of 0.37%.
Builder Confidence in Nashville Picks Up
Builder confidence took a nosedive in 2022. At the start of the year, the National Association of Home Builders/Wells Fargo Housing Market Index showed builder confidence in the Southern U.S. at 86 out of 100. By the end of the year, it had toppled to just 35, a 51-point drop.
Since then, it’s recovered slightly, settling in at 45 — an improvement, but still 39 points lower than a year ago.
Nonresidential construction, which is measured using architectural billings, has fallen quite a bit over the last year, too. Not only are these down 14 points over the year, but they’re also below typical pre-pandemic (2018-2019) rates, per the Architecture Billings Index.
Nashville Real Estate Market: Predictions
Overall, Nashville’s housing market seems to be holding strong. Unemployment is low, and consumer and builder sentiment, while down from a year ago, have started to recover.
Though the trajectory of interest rates will likely play a big role in where the market heads further into this year, our forecast predicts single-family permits will increase in March and then decline in April and May. Multifamily permits are expected to fall steadily for the next few months.
If those predictions come true, inventory will remain in short supply in Nashville, which could keep prices from falling any large amount, especially if the job market remains strong.
“Our secret sauce is the triple-digit numbers of people moving here every day to pursue what they what they believe is going to be a better life in Tennessee,” Checko says. “I can’t understate how important that has been despite the challenges that are there. They’re real and we’re feeling it, but we’re better off than most.”
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Nashville Housing Market Forecast originally appeared on usnews.com
