Do you want to know what to expect for Nashville Real Estate in 2022? Here are the top three trends predicted to drive the market this year.
First, expect that the supply of homes for sale will continue to be the number one issue in Nashville real estate. Supply has become a growing issue over the last few years due to increased local demand, a decade of below-average new construction volume, and an antigrowth sentiment in many communities. Across the nation, we need five million more new construction homes today to be a balanced market. At the current rate, it will take five to ten years for the national supply and demand to stabilize.
It could take longer than that in Nashville. For example, the first phase of River North recently broke ground on the East Bank of the Cumberland River. It will feature 651 apartment units, 78,000 square feet of office space and approximately 80,000 square feet of retail space across four buildings. In addition, Oracle purchased a 65-acre site adjacent to River North and is expected to bring 8,500 jobs to their Nashville campus in the coming years. This is just two of several major projects happening in our area right now.
Second, expect that real estate will continue to appreciate in Nashville in 2022. In 2021, the median sales price of a home rose 22.4 percent from $339,000 to $414,900. Expert projections for home value increases in 2022 range from 6 percent up to a high of 19.8 percent locally.
While that sounds great, double-digit appreciation year after year is not sustainable or healthy for our real estate market. Due to action recently announced by the Federal Reserve Bank, I expect appreciation to be eight to 10 percent in 2022. This is above our 10-year average of 7.2 percent annual appreciation for single-family homes in Greater Nashville.
Last, the biggest risk to the local market is rising interest rates due to inflation. In December, the Federal Reserve announced they would be eliminating their bond purchases by March 2022. They are currently buying $120 billion in bonds each month, $40 billion in Mortgage-Backed Securities and $80 billion in Treasury debt. This step alone will put upward pressure on mortgage interest rates.
In addition, they announced plans to raise the Federal Funds Rate up to three times per year between 2022 and 2024. This is the rate the banks borrow money from the Federal Reserve, increasing their cost of doing business and adding fuel to the inflationary fire.
Rising interest rates destroy a buyer’s purchasing power. A one percent increase in interest rates reduces buying power by eleven percent. That means if you were approved to buy a $400,000 home with interest rates at three percent, then an increase to a four percent rate brings your approved purchase price down to $356,000.
If you plan to buy a home in the near future, it’s imperative that you start early and find an expert Realtor who can guide you through all of the obstacles in this market to help you find your home in Nashville.
Steve Jolly is President of Greater Nashville Realtors. A Realtor is a member of the National Association of Realtors who subscribes to its strict code of ethics. You can reach Steve at 615-519-0983 or Steve@NashvilleRealEstateNow.com
