Nashville's Tide of Foreclosures

Top 5The Tennessean recently reported that real estate analysts are predicting new waves of home foreclosures in Nashville and Middle Tennessee.  The experts predict several factors will work together in 2012 to produce a series of waves that may further drive down prices and erode consumer confidence.  The experts cite the settlement of the case between the state attorneys general and mortgage servicers as one of the factors that is expected to drive foreclosures in 2012.

We may have an increase in the number of foreclosures in 2012; however, Nashville is well positioned to handle the increase in inventory without significantly affecting the market. Due to the following five factors, Nashville’s next tide of foreclosures may come and go without much notice.

First, relocation continues to thrive due to the numerous advantages for business in Nashville and all over Tennessee.  Forbes recently rated Nashville #6 in their annual list of “Best Places for Business and Careers.”  This ranking looks at the 200 largest Metro areas and considers 12 metrics related to job growth, cost of living, business expenses, income growth, education and projected economic growth.

Second, unemployment is the number one factor currently driving foreclosures.  Nashville and Tennessee’s unemployment rate has been falling and is currently at eight percent.  This is the lowest rate reported for Tennessee since November 2008.  Over the past year the state has gained more than 50,000 jobs in healthcare, durable manufacturing and in other areas.

Third, foreclosure alternatives are being used more often by the largest banks and mortgage servicers.  Short sales have been popular for a few years, but banks are also utilizing more loan modifications, rental programs, deed in lieu and note sales to reduce the volume of foreclosures.  These programs reduce inventory levels of homes for sale which has a positive impact on values.

Fourth, Capital Economics is reporting that banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.  Banks are also loosening loan-to-value ratios (LTV), which is the clearest sign yet of an improvement in mortgage credit conditions. In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV. Currently, 8 percent of contract cancellations are the result of a potential buyer not qualifying for a loan.

Lastly, the shadow inventory and new delinquencies are down in Tennessee.  The National Association of Realtors recently reported that shadow inventory in Tennessee has fallen more than 20% and new defaults have fallen significantly.  These improvements in the market are exciting, but it will still take some time to work through the 27,000 homes that are estimated to be in Tennessee’s current shadow inventory.  Nashville may have a few factors that are currently working against the real estate market; however, we should not expect a foreclosure tsunami or even a series of waves.  Nashville is well prepared to handle the tide of foreclosures in 2012 and make strides back to historical norms.  If you have been waiting for the perfect time to buy a home in Nashville, do not wait much longer.

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