Tennessee, housing, market, Tennessee housing, Tennessee housing market, housing market

David A. Penn

English

Research Papers in Economics

T
his quarterly Tennessee housing market report series is sup-
ported by a Tennessee Housing Development Agency grant.
Fourth Quarter Economic Overview
Economic conditions in Tennessee continued to deteriorate in
the fourth quarter, with just about all major economic indicators
shifting more negative in dramatic fashion. For example, total
nonfarm employment fell 0.9% from the previous quarter,1 the
sharpest percentage decline since the first quarter of 1982. Most
of the jobs lost (65%) occurred in the services-providing sec-
tors, with losses spread throughout every major sector except
education and health services. Although losses in manufacturing
employment continue, the decline is not as large as experienced
during the mild 2001 recession.  By sector, seasonally adjusted
job losses from the previous quarter include manufacturing
(7,700), retail trade (6,000), professional and business services
(5,000), transportation and warehousing (2,900), and local gov-
ernment educational services (1,600). These five sectors repre-
sent 90% of the net job loss for Tennessee.  
The unemployment rate rose during the fourth quarter to
7.3%, up from 6.9% in the previous quarter. A larger increase
was expected; in fact, the fourth quarter increase of 0.4 per-
centage points was less than half the rise during the previous
two quarters. Part of the reason is the fact that some unem-
ployed workers are dropping out of the labor force because
they either have become discouraged about finding work or
are waiting for the job market to improve. In any event, fewer
adults are working or pursuing work, causing the labor force
to fall 19,000 from the peak in the second quarter of 2008.
Housing Construction
Single-family construction suffered a severe decline in the
fourth quarter, falling to an annual rate of 9,800 permits is-
sued, down 37% from the third quarter and 56% over the year.
As shown in Table 2, the South and the U.S. also experienced
large declines but not as large proportionally as Tennessee.
Permits issued for multi-family housing offer a modest degree
of stability for Tennessee. Multi-family housing regained con-
siderable ground in the third quarter and is down relatively
Table 1. Selected Tennessee employment indicators (in thousands, seasonally adjusted)
2007.4 2008.1 2008.2 2008.3 2008.4
Employment by industry (nonfarm)
Total nonfarm 2,803 2,797 2,785 2,785 2,760
Goods-producing sectors 516 512 508 506 498
Manufacturing 377 374 371 369 361 
Services-providing sectors 2,287 2,284 2,276 2,279 2,262
Unemployed 152 160 186 209 221
Total employment 2,901 2,896 2,873 2,831 2,817
Labor force 3,054 3,057 3,058 3,040 3,039
Unemployment rate (%) 5.0 5.2 6.1 6.9 7.3
Source: Bureau of Labor Statistics
Table 2. Permits issued for privately owned new housing, seasonally adjusted annual rate (in thousands)
Single-Family Permits Multi-Family Permits Total Permits
Quarter Tennessee South U.S.   Tennessee South U.S. Tennessee South U.S.
2007.1 33.2 588.3  1,130.3  6.5 193.3 450.7 39.7 781.7 1,581.0
2007.2 29.6 540.7 1,052.3  7.0 202.0 429.0 36.6 742.7 1,481.3
2007.3 27.4 482.0  931.7  6.4 172.0 403.7 33.8 654.0 1,335.3
2007.4 22.2 399.7  764.0  9.1 169.7 396.0 31.3 569.3 1,160.0
2008.1 18.1 351.7  647.3  5.4 163.3 341.0 23.5 515.0 988.3
2008.2 17.6 331.7 633.3  3.3 141.0 399.3 20.9 472.7 1,032.7
2008.3 15.5 288.7 558.3  5.9 157.3 308.0 21.5 446.0 866.3
2008.4 9.8 213.7 416.0 5.5 100.7 214.7 15.2 314.3 630.7
Change from previous quarter -37.2% -26.0% -25.5% -7.7% -36.0% -30.3% -29.1% -29.5% -27.2%
Change from previous year -56.1% -46.5% -45.5% -39.9% -40.7% -45.8% -51.4% -44.8% -45.6%
Source: Census Bureau and BERC
Business and Economic Research Center  ￿  David A. Penn, Director  ￿  Jennings A. Jones College of Business  ￿  Middle Tennessee State University 
berc 
Tennessee Housing Market
4th quarter 2008 
1. A quarterly loss of 0.9% is equivalent to an annualized 3.6% rate of decline.Figure 1. Single-family permits issued (thousands), Tennessee and U.S. (seasonally adjusted annual rate)
U
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S
.
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45
40
35
30
25
20
15
10
5
Tennessee Housing Market Brief 4th quarter 2008
2003 2004 2005 2006 2007 2008
Figure 3. Mortgage tax collections (seasonally adjusted annual rate)
M
i
l
l
i
o
n
s
$80
$75
$70
$65
$60
$55
$50
$45
$40
berc  2
1234123412341234
2005 2006 2007 2008
Tennessee
United States
2007 Q1 2007 Q2 2007 Q3 2007 Q4 2008 Q1 2008 Q2 2008 Q3
Figure 2. Growth of repeat sales home price index, year to year
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
1,700
1,500
1,300
1,100
900
700
500
300
Nashville
Knoxville
Tennessee
Chattanooga
U.S.
Memphis
Source: Census Bureau and BERC
Source: OFHEO
Source: Tennessee Department of Revenue and BERC
mildly (compared with single-family) in the fourth quarter. In
fact, compared with the South and the U.S., multi-family con-
struction in Tennessee seems rather stable.
Real Estate Transactions and Mortgages
Taxes collected from real estate transactions and mortgages fell
again during the fourth quarter. As of yet, we see no bottom in
sight for these indicators. In fact, the rate of decline actually ac-
celerated during the fourth quarter, with mortgage tax down 16%
and real estate tax down 13.3% from the previous quarter.  
Home Sales and Prices
Sales of single-family homes showed no improvement in the
fourth quarter; in fact, sales resumed a rather steep negative tra-
jectory following rather modest declines in the third quarter.
After seasonal adjustments, fourth-quarter closings are down
19.7% in the Nashville area, 10.3% in Memphis, and 11.1% in
Knoxville.  
The inventory of single-family homes continues to decline in
the Nashville and Memphis areas and is flat in the Knoxville
T
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n
e
s
s
e
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Figure 4. Real estate transfer tax collections (seasonally adjusted annual rate)
$50
$170
$150
$130
$110
$90
$70
M
i
l
l
i
o
n
s
2003 2004 2005 2006 2007 2008
Source: Tennessee Department of Revenue and BERC
Table 3. Mortgages past due, new foreclosures started, and foreclosure inventory (% of mortgages serviced,
seasonally adjusted) 
Tennessee United States
Mortgages  Foreclosures started  Foreclosure inventory Mortgages  Foreclosures started  Foreclosure inventory
Quarter past due during quarter at end of quarter past due during quarter at end of quarter
2007.1 6.5 0.59 1.24 4.89 0.58 1.26
2007.2 6.8 0.61 1.20 5.20 0.64 1.43
2007.3 7.3 0.70 1.28 5.54 0.78 1.72
2007.4 7.4 0.71 1.37 5.76 0.83 1.99
2008.1 7.8 0.72 1.49 6.38 0.99 2.44
2008.2 7.9 0.77 1.56 6.41 1.18 2.80
2008.3 8.3 0.79 1.59 6.95 1.07 3.02
Source: Mortgage Bankers Association of America and BERC
berc  3
Tennessee Housing Market Brief 4th quarter 2008
area. This trend is remarkable given the very large drop in de-
mand we witnessed in the fourth quarter. Inventories rise when
supply growth exceeds that of demand and fall when demand
growth is greater than the increase in supply. If demand is falling
yet inventories drop, supply must be falling faster than demand.
Housing supply consists of new homes (construction) plus the
number of existing homes placed on the market. We know that
construction, as measured by building permits, seems to be
falling faster than demand; hence, inventories fall. Falling in-
ventories should eventually help restore balance between supply
and demand and provide a floor to housing prices.
The most recent evidence for the third quarter 2008 shows home
prices falling at a 4% rate for the U.S.; Tennessee continues to
show modest price increases, but the appreciation rate is down
to 1.4% in the third quarter, compared with a 2.6% gain in the
second quarter. The Office of Federal Housing Enterprise Over-
sight same-sales index shows prices are now falling in Mem-
phis (-0.7%) and Chattanooga (-0.1%) compared with a year
earlier. 
Mortgage Delinquencies and Foreclosures
The number of mortgages past due in Tennessee continues to rise,
according to the latest Mortgage Bankers Association of America
report for the third quarter of 2008. Past due rose to 8.3% of mort-
gages in place, up from 7.9% in the previous quarter. 
Compared with other states, Tennessee has a below-average in-
ventory of foreclosures (32nd highest) but an above-average rate
of foreclosures initiated (20th highest). This means Tennessee’s
foreclosure inventory likely will expand faster than some other
states, causing the state’s foreclosure inventory ranking to rise in
the coming quarters.
While rising, the foreclosure inventory for Tennessee is only
about half as large as for the U.S., 1.59% for Tennessee com-
pared with 3.02% for the nation. Also, the inventory of foreclo-
sures is growing much more slowly than for the U.S. average.
The national figures, however, are heavily weighted by large
states including California, Florida, and Arizona. 
Conclusion
The fourth quarter was difficult for the Tennessee economy.
The increase in job losses will create a substantial headwind
for the housing market. Although mortgage rates are ex-
tremely low, a decline in household confidence along with
falling housing prices will likely keep many home buyers on
the sidelines. The inventory of foreclosures will continue to
rise, as indicated by the rising number of new foreclosures.
Home sales continue to fall, putting downward pressure on
prices. Since supply is falling faster than demand, the inven-
tory of homes on the market is declining. The scarce good
news is the increase in multi-family permits. I
n
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e
n
t
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r
y
C
l
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s
i
n
g
s
I
n
v
e
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t
o
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Closings
Inventory
Figure 5. Single-family sales and inventory (seasonally adjusted quarterly average of monthly figures) 
3,000
2,800
2,600
2,400
2,200
2,000
1,800
1,600
1,400
1,200
1,000
16,000
15,000
14,000
13,000
12,000
11,000
10,000
9,000
8,000
berc  4
Tennessee Housing Market Brief 4th quarter 2008
C
l
o
s
i
n
g
s
I
n
v
e
n
t
o
r
y
Closings
Inventory
Nashville Area
Memphis Area
Knoxville Area
15,000
14,000
13,000
12,000
11,000
10,000
9,000
8,000
7,000
6,000
2005 2006 2007 2008
1234123412341234
1,500
1,400
1,300
1,200
1,100
1,000
900
800
700
C
l
o
s
i
n
g
s
6,000
Closings
Inventory
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
800
7,000
8,000
9,000
10,000
11,000
12,000
13,000
Source: Greater Nashville Association of Realtors, Memphis Area Association of Realtors, Knoxville Area Association of Realtors, and BERC

Tennessee Housing Market: 4th Quarter 2008

http://frank.mtsu.edu/~berc/pdfs/housingbrief4Q08.pdf

Tennessee Housing Market: 4th Quarter 2008

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