Tennessee, housing, market, Tennessee housing, Tennessee housing market, housing market, construction, fourth quarter, 2009, foreclosures, Nashville, Knoxville, Memphis

David A. Penn

English

Research Papers in Economics

T
his quarterly series is supported by a Tennessee Housing
Development Agency grant.
Economic Overview  
The growing national economy has not yet produced visible re-
lief for Tennessee. Although the recession has likely ended from
an economist’s perspective, improving conditions have not yet
resulted in job growth. Employment continued to decline during
the fourth quarter, posting losses in every industry except health
care and social services.  
Initial claims for unemployment insurance declined (Fig. 1), sig-
naling that employers are laying off far fewer workers than ear-
lier in 2009. However, fewer layoffs have not led to additional
hiring. The Tennessee unemployment rate dropped (Table 1), but
this was caused by a decline in the labor force: fewer people are
looking for work. Employers are very cautious about hiring given
the level of uncertainty regarding demand for goods and services.  
Some positive signs can be found in the manufacturing sector
nationally. The Purchasing Managers Index (PMI), an indicator
of manufacturing strength, rose for the sixth straight month, sig-
naling an expanding manufacturing sector. Average weekly hours
worked in manufacturing are up for the U.S. and Tennessee, as
is hiring in the temporary help sector. Both can be considered
leading indicators of manufacturing employment growth.
Housing Construction
Single-family home construction permits rose again in the fourth
quarter, climbing to 13,500 from 12,700 in the third quarter. Al-
though single-family construction has improved for four con-
secutive quarters, the level of activity remains substantially
lower than most of 2008 (Table 2 and Fig. 2). 
Compared with the Southern states and the U.S., however, Ten-
nessee’s single-family construction is progressing more rapidly.
Single-family permits increased 6.6% in the fourth quarter for
Tennessee, compared with just 2.5% for the South and 3.2% for
the U.S.  
In contrast with the single-family market, multi-family construc-
tion remains in the doldrums. Although multi-family permits rose
in the fourth quarter, they remain at an extremely low level. Tight-
ened credit markets have all but dried up lending for these units.
Table 1. Selected Tennessee employment indicators (in thousands, seasonally adjusted)
2008.4 2009.1 2009.2 2009.3 2009.4
Employment by industry (nonfarm)
Total nonfarm 2,743.0 2,696.4 2,659.2 2,653.4 2,643.2
Goods-producing sectors 478.8 448.5 428.9 424.2 420.1
Manufacturing 350.0 332.1 320.0 320.0 318.6
Services-providing sectors 2,264.2 2,248.0 2,230.3 2,229.3 2,223.1
Unemployed 220.6 275.6 317.7 320.9 309.0
Total employment 2,826.9 2,765.9 2,721.9 2,692.0 2,675.8
Labor force 3,047.4 3,041.5 3,039.6 3,012.9 2,984.8
Unemployment rate  7.2% 9.1% 10.5% 10.7% 10.4%
Source: Bureau of Labor Statistics
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 2009 
Figure 1. Tennessee initial claims for unemployment insurance (quarterly averages of weekly data, seasonally adjusted)
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2002 2003 2004 2005 2006 2007 2008 2009
12341234123412341234123412341234
Source: U.S. Dept. of Labor, Employment & Training Administration20
0
5
10
15
25
30
35
Tennessee Housing Market Brief 4th quarter 2009
Figure 2. Tennessee single-family home permits 
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Figure 3. Real estate transfer tax collections (seasonally adjusted annual rate)
$170
$150
$130
$110
$90
$70
$50
Millions
2007 2008 2009
Source: Tennessee Department of Revenue and BERC
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
Seasonally adjusted
Trend
Table 2. Permits issued for privately owned new housing (seasonally adjusted annual rate, in thousands)
Source: Census Bureau
Single-Family Permits Multi-Family Permits Total Permits
Quarter Tennessee South U.S.   Tennessee South U.S. Tennessee South U.S.
2007.2 29.4 528.3 1,031.7 7.4 204.3 425.0 36.7 732.7 1,456.7
2007.3 27.1 474.7 916.3 6.6 163.3 398.0 33.7 638.0 1,314.3
2007.4 22.5 414.0 786.0  8.4 175.3 402.3 30.9 589.3 1,188.3
2008.1 18.4 364.0  670.0  5.5 174.0 358.3 23.9 538.0 1,028.3
2008.2 17.4 327.7 627.0  3.6 154.3 420.7 21.0 482.0 1,047.7
2008.3 15.4 286.3 550.7  5.8 159.3 311.7 21.3 445.7 862.3
2008.4 9.9 219.7 420.7 4.7 104.3 220.3 14.7 324.0 641.0
2009.1 10.5 198.7  361.0  2.7 79.0 169.7 13.2 277.7 530.7
2009.2 11.1 213.0 405.7 3.9 64.0 123.0 15.1 277.0 528.7
2009.3 12.7 242.3 459.7 1.2 46.3 113.3 13.9 288.7 573.0
2009.4 13.5 248.3 474.3 1.4 50.7 123.3 14.9 299.0 597.7
Change from previous quarter 6.6% 2.5% 3.2% 14.1% 9.4% 8.8% 7.2% 3.6% 4.3%
Change from previous year 35.9% 13.1% 12.8% -70.0% -51.4% -44.0% 1.7% -7.7% -6.8%
123412341234123412341234123412341234
2001 2002 2003 2004 2005 2006 2007 2008 2009
40
T
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s
The moderate but steady rise in single-family construction ac-
tivity has been aided by extremely low mortgage rates, the first-
time buyer’s tax credit, and Federal Reserve purchases of
mortgage securities from Fannie Mae and Freddie Mac. Policy
support of the mortgage market is changing, however. The tax
credit is set to expire at the end of April, and the Fed has an-
nounced plans to begin reducing its mortgage holdings, which
will put upward pressure on mortgage rates. Further, the FHA
has announced plans to tighten lending requirements in order to
reduce unexpectedly high future loan losses. The combined ef-
fect of these policy changes will be to reduce demand for hous-
ing to a lower level than otherwise would have occurred.
Real Estate Transactions and Mortgages
Taxes collected on real estate transfers rose for the second con-
secutive quarter, albeit modestly, gaining 2.2% from the third
quarter (Fig. 3). The transfer tax is based on the value of a prop-
erty transaction; the small fourth-quarter gain likely means that al-
though more property is changing hands, the property value  is
lower than just a few months ago. That being said, Tennessee has
not experienced two consecutive quarterly gains since 2006. The
second housing-related tax, the mortgage tax, gained 7.5% in the
fourth quarter following two months of decline (Fig. 4). The
higher mortgage tax collections signal increased borrowing ac-
tivity for both new and pre-existing home purchases.
Source: Census Bureau, with seasonal adjustmentFigure 4. Mortgage tax collections (seasonally adjusted annual rate)
$30
$90
$80
$70
$60
$50
$40
M
i
l
l
i
o
n
s
Source: Tennessee Department of Revenue and BERC
Table 3. Mortgages past due, new foreclosures started, foreclosure inventory (% of mortgages serviced, seasonally adjusted) 
Tennessee U.S.
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
2007.3 7.41 0.69 1.30 5.60 0.78 1.72
2007.4 7.34 0.72 1.38 5.79 0.85 2.01
2008.1 7.74 0.71 1.48 6.21 0.99 2.42
2008.2 7.95 0.77 1.55 6.45 1.14 2.79
2008.3 8.41 0.78 1.61 7.03 1.08 3.02
2008.4 9.08 0.81 1.73 7.91 1.04 3.26
2009.1 10.08 0.93 1.95 9.04 1.33 3.77
2009.2 10.31 0.99 2.21 9.21 1.43 4.36
2009.3 10.71 1.03 2.30 9.59 1.44 4.55
Source: Mortgage Bankers Association of America, BERC
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Tennessee Housing Market Brief 4th quarter 2009
Home Sales
Sales of single-family homes rose sharply in the Nashville,
Memphis, and Knoxville areas (Fig. 5-7) for the third consecu-
tive quarter. Sales are 20% higher for Nashville, 9.8% for Mem-
phis, and 16.9% for Knoxville. Inventories of homes on the
market dropped modestly in Nashville and Memphis but are
level in Knoxville. Sales for Nashville and Knoxville are the
highest since the first quarter of 2008, while Memphis sales are
the highest since the third quarter of 2008.  
Maintaining improvement in the housing market will require
housing price stability and employment growth. Housing prices
are experiencing considerable downward pressure in Tennessee;
according to Federal Housing Finance Agency data, housing
prices are 2.2% lower over the year for Tennessee, 2.1% lower
for Nashville, down 2.2% for Memphis, and 0.9% lower for
Knoxville. To be sure, other areas of the nation such as Florida,
Nevada, Arizona, and California are experiencing much more
housing price deflation. U.S. average housing prices in the third
quarter 2009 declined 3.8% over the year. Given the continuing
rise in foreclosures (below), price stability is not yet in sight.
We continue to search for employment growth in Tennessee.
While the number of layoffs has trended lower over the past 12
months, net job creation has not followed. Job growth is needed
to boost confidence and spur in-migration from other counties and
states, one of the driving forces in Tennessee’s housing growth.
Mortgage Delinquencies and Foreclosures
Mortgages past due and new foreclosures show no sign of abat-
ing, according to the latest Mortgage Bankers Association fig-
ures (Table 3). The number of foreclosures initiated during the
third quarter of 2009 exceeded 1% in Tennessee for the first time
during this downturn. Rising foreclosures are a symptom of the
continuing severe financial stress felt by many Tennessee house-
holds in the face of higher unemployment and income losses.
The fact that conditions are worse and unraveling faster for the
U.S. provides a little comfort for Tennessee.  
As has been the case during this recession, Tennessee ranks very
high in the percent of mortgages past due (8th highest) but about
average for the percent of new foreclosures (24th highest). As
for seriously delinquent mortgages,1 Tennessee’s third quarter
2009 figure is 6.53%, ranking near the middle (23rd highest)
among the 50 states. By comparison, states with the most severe
housing problems (Michigan, Arizona, Florida, California, Ne-
vada) are experiencing seriously delinquent rates from 10% to
18%. The lowest  seriously delinquent mortgage rates are found
in the west central states stretching from Texas to the Canadian
border, which average about 5.5%.
Conclusion
Some signs of improvement continue for Tennessee’s housing
market: residential sales, single-family construction permits, and
real estate transactions are up. However, rapidly increasing num-
bers of foreclosures and distressed mortgages will put additional
downward pressure on housing prices. Job creation is needed to
solidify recent housing market gains. Job growth remains elusive,
but we see signs of improvement, particularly in manufacturing.
1According to the Mortgage Bankers Association, seriously delinquent
mortgages are the sum of mortgages at least 90 days past due plus the cur-
rent inventory of foreclosures, as a percent of all mortgages in service.
123412341234123412341234123412341234
2001 2002 2003 2004 2005 2006 2007 2008 2009I
n
v
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t
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C
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Closings
Inventory
Figure 5. Single-family sales and inventory (seasonally adjusted quarterly average of monthly figures) 
0
500
1,000
1,500
2,000
2,500
3,000 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 2009
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
2006 2007 2008 2009
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
1,500
1,400
1,300
1,200
1,100
1,000
900
800
700
600
C
l
o
s
i
n
g
s
6,000
Closings
Inventory
2,500
2,300
2,100
1,900
1,700
1,500
1,300
1,100
900
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
Source: Greater Nashville Association of Realtors, Memphis Area Association of Realtors, Knoxville Area Association of Realtors, and BERC

Tennessee Housing Market: 4th Quarter 2009

http://frank.mtsu.edu/~berc/pdfs/housingbrief4Q09.pdf

Tennessee Housing Market: 4th Quarter 2009

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