Tennessee real estate most overvalued in US. Why Nashville, Memphis prices are inflated

Home prices in Tennessee are overvalued at twice the national average, according to a recent report by credit analyst Fitch Ratings. The report estimated national home prices were 11.1% overvalued during the fourth quarter of 2023.

Tennessee experienced the biggest increase in homes being sold above their long-term average price — an estimated 20% to 24% overvaluation. The median home sale price in the state in March 2024 was $378,600, up about 6.2% from the year prior.

An analyst from Fitch Ratings said the overvaluation in Tennessee is indicative of a disconnect between the sustainable fair-market value and current home prices.

According to experts, prices aren't expected to plummet anytime soon. Rather, widespread overvaluation is a sign of the times.

High demand and low supply are to blame for skyrocketing prices in Tennessee, Greater Nashville Realtors board member Collyn Wainwright said. Population growth in the state, especially since the COVID-19 pandemic, has created a surge in the demand for housing.

"We saw so much interest generated in our state," Wainwright said.

Memphis was identified in the report as the metropolitan area with the highest overvaluation when compared to the 50 most populated metro areas, while the Nashville metro area was ranked in the fifth spot. Memphis had a median home sale price of $172,000 in March 2024. The Nashville metropolitan area, which includes Murfreesboro and Franklin, had a March 2024 median home sale price of $474,990.

Memphis and Nashville are very different markets, however. Memphis home prices are down 1.3% year over year, but valuations had climbed over the previous five years. The Nashville area, meanwhile, saw a 1.1% climb in home prices year over year.

Wainwright said Memphis has ultimately benefitted from growth in the entire state, and the city's affordability relative to the rest of Tennessee has kept interest high.

What's different about the Memphis, Nashville markets?

In Memphis, home prices have remained at more affordable levels when compared to the rest of the state. A recent study by Clever Real Estate identified Memphis as one of the most affordable markets in the country for median-income households.

But according to the Fitch Ratings analysis, Memphis home prices are still overvalued compared to the estimated fair-market value.

The Fitch Ratings report, according to analyst Sean Park, considered factors including household income, number of households, rent prices, unemployment rates and mortgage rates. The number of households in Memphis has been trending downward, which pulls down the estimated fair-market value.

In Nashville, Park said, rent prices have dipped over the past year, yet the gulf between renting and owning continues to grow.

Home prices, demand surges in Middle Tennessee region

Growth in the Middle Tennessee region has skyrocketed in recent years, adding demand to the home market in areas surrounding Davidson County. It has also created extra stress on the region's infrastructure.

Patrick Cammack of the Rutherford County Chamber of Commerce, who spoke at a Nashville economic panel last week, said Murfreesboro is the top builder of roads in the state — a clear sign of the area's rapid growth.

"Now, you ask a Murfreesboro resident, and they will doubt that, and they will probably fight you, take you to court on that," Cammack said at the conference. "But it's true, and it's hard to stay ahead of these growing pains."

Corey Johns, executive director of the Joint Economic & Community Development Board of Wilson County, noted at the conference that the average home price across Wilson County is estimated at more than $450,000.

"Depending on what years you look at, how you count, Wilson County is either the first, second or third-fastest growing county in the state right now," Johns said.

Waived appraisals keep prices climbing in competitive market

Wainwright said waived appraisals could be one factor leading to overvaluation in the Nashville region.

In the midst of Nashville's red hot 2022 home market, buyers were waiving appraisals to get home sales across the finish line.

"Appraisals are an important check and balance to our market," Wainwright said. "And when appraisals don't match the contract price of the house, that can kill the deal."

Skipping appraisals became a short-term commonplace practice in the Nashville market, where homes are sometimes selling for $50,000 to $100,000 more than listed. During the market's 2022 peak, all-cash offers and bidding wars were typical.

Wainwright said prices aren't likely to budge much in the coming months, as supply hasn't drastically changed and demand continues to climb.

"A lot of people sat on the sidelines when interest rates went up," she said. "People are not wanting to wait anymore."

Reporter Hadley Hitson contributed to this story.

Reporter Molly Davis covers growth and development in Nashville. Reach her at mdavis2@gannett.com. 

This article originally appeared on Nashville Tennessean: Tennessee housing: Prices boom as market favors homeowners, landlords