Tennessee Housing Market Continues to Skyrocket, Favoring Homeowners and Landlords Amidst High Demand and Short Supply

Tennessee Housing Market Favors Homeowners, Landlords_as Prices Boom

Home prices in Tennessee are expanding at twice the national average, making the state’s real estate among the most overvalued in the US. This drastic rise has been attributed to high demand, low supply, and a climbing population, especially in the post-pandemic period.

Overvaluation in Tennessee

In the final quarter of 2023, Fitch Ratings, a credit analysis agency, reported that nationwide, home prices were overvalued by 11.1%. However, in Tennessee, the housing scenario was more alarming, with homes being sold 20% to 24% above their long-term average price. To put it in numbers, the median price of a home in the state in March 2024 was $378,600, witnessing a 6.2% rise from the previous year.

The overvaluation in the state represents a significant divide between the sustainable fair-market value and the current home prices. However, experts do not see a drop in these inflated prices anytime soon, reinforcing that such widescale overvaluation is the sign of the times we live in.

High Demand and Low Supply

The mismatch between demand and availability of homes in the Tennessee housing market has led to the rapid rise of prices. This is mainly because of the state’s population growth, particularly post-COVID-19, which has resulted in an increased need for housing.

According to the recent Fitch Ratings report, Memphis metro boasted the highest overvaluation compared to the 50 most populated metro areas in the country, and Nashville metro secured the fifth position. The median home sale in Memphis and Nashville as of March 2024 stood at $172,000 and $474,990, respectively.

The Difference in Home Markets: Memphis Vs. Nashville

Although both are under the Tennessee state, the housing markets of Memphis and Nashville are indeed different. While Memphis values saw a 1.3% downtrend year-over-year, it still experienced a substantial climb in the past five years. Nashville, on the other hand, saw a 1.1% year-over-year rise in home prices.

Memphis has managed to stay affordable despite the growth in the city’s valuation, making it one of the most affordable markets in the country for median-income households. However, despite the affordability, Memphis home prices are still heavily overvalued, as per the analysis by Fitch Ratings.

No such luck for Nashville though. With rental prices dipping over the past year, home prices have become significantly more expensive, thus widening the gap between renting and owning.

Waived Appraisals

An interesting factor leading to overvaluation in the Nashville region is the waived appraisals, which became quite common at the peak of the home market in 2022. All-cash offers and bidding wars were typical during this period, resulting in homes sometimes selling for $50,000 to $100,000 more than the listed price. Although appraisals usually check and balance the housing market, the absence of this factor during the peak could have led to the current overvaluation.