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'We're pricing average Nashvillians out of homeownership.' Concern grows about soaring prices

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Posted at 10:21 PM, Aug 25, 2021
and last updated 2021-08-25 23:36:58-04

NASHVILLE, Tenn. (WTVF)  — Housing prices are soaring. Some question whether we are moving toward another housing bubble. But others argue the high prices are here to stay and will lead to a fundamental shift in homeownership.

That shift could lead to more families renting a home instead of buying.

First-time homebuyers are struggling to come up with the cash needed for a down payment. A few months ago Realtor Prentiss Holt listed a basic, starter home in Rutherford County $217,000.

"We had 27 offers. That was when the party was over," Holt said.

After just 8 hours on the market, he closed bidding and spread the offers on a conference table for the seller.

"We walked around and looked at each one and the seller picked the contract he wanted," Holt said.

Some offers were close to $100,000 over the asking price.

Tennessee State University Professor Ken Chilton says housing prices are not keeping up with incomes which is devastating for first time homebuyers.

"We're pricing average Nashvillians, average Americans out of homeownership opportunities," Chilton said.

He charts price to income ratios - which basically measure how many years of income it would take to pay off a home.

"The gap between what you earn and the price of a home has expanded rapidly," Chilton said.

He said In 2000, in Davidson County, the median income was $40,423. The median home price was $141,733 - for a price to income ratio of 3.5.

But today the median home price has more than doubled to $353,921, while incomes have not increased as much $63,846. So the ratio has ballooned to 5.5.

"Historically once you get above 4, it starts getting a little frothy. So it has some analysts concerned about another housing bubble," Chilton said.

The last time housing prices shot up like this was before the Great Recession, when many took out loans they could not afford and banks foreclosed.

NewsChannel 5 Investigates asked, "How concerned are you about another housing bubble?"

Chilton responded, "I'm very concerned."

Bruce McNeilage builds entire rental home neighborhoods.

"We have a waiting list when things become available," McNeilage said.

He does not think we are in another housing bubble, but he does think we are seeing a fundamental shift in homeownership.

"I think sooner or later people give up and they say it's not for me," McNeilage said.

His rental communities are near good schools for families that want the single-family home experience - but can't afford - or don't want to own a home.

"The pandemic has been the best thing for our business because people aren't buying so they're renting," McNeilage said.

Holt said it has been heartbreaking to see first time home buyers priced out of the market.

He said people who win contracts now are flush with cash.

"There's no first-time home buyer anymore. There's no first-time buyer product," Holt said.

Some buyers have sold homes in other cities and come into middle Tennessee with lots of cash and he said in some cases corporations are buying homes to rent out.

"I don't think we are in a bubble. I don't think we're anywhere close to the bubble bursting," Holt said.

Bubble or not there is agreement soaring prices are pushing many out of home ownership.

"I do believe most Americans grew up believing, 'I'm going to own a home,' and that's part of the American Dream. And that's becoming harder and harder to do," Chilton said.

Many real estate professionals do not think we are in a housing bubble.

They say prices were undervalued for years and they are catching up with other parts of the country.