The regional housing market will head into a recession in the next five years, according to market researcher Edsel Charles.
Charles spoke about the state and future of the housing market to a group of real estate agents and other interested parties Friday morning at the Westhaven Golf Club
Known as a veritable housing guru in Mid-Tennessee, the founder and Chairman of the Board for MarketGraphics Research Group, based on Franklin, Charles has been involved in building more than $100 million in new single-family homes across the nation since the late 1970’s.
In his talk he hit on two recurring points.
Despite growing demand for houses in the past several years, the number of lots being bought by developers is much less than demand for them.
And because of that lag between supply and demand, he predicts that the market will stop growing by 2020, and decrease by about 15 percent by the end of 2022.
Currently, he said, in the Nashville metropolitan area, there are 14,339 lots coming in the pipeline to be developed.
That represents about a year’s supply at current demand.
“But a healthy market needs a two and a half year supply,” he said. “To meet that we would need to increase by 18,000 lots to see any price relief.”
Based on projections, he estimated there is a demand for 27,000 houses over the next two years. Contrast that against the roughly 12,000 actually available, and you have a recipe for rising prices and a shrinking market.
“It is absolutely nuts,” Charles said.
He predicts the housing market demand to continue growing until about 2020. After that, he expects demand to fall about 5 percent at the end of 2020, go down another 5 percent at the end of 2021 and reach a bottom down four more percent at the end of 2022.
“That dip, however, will only bring us back to about the same market size we have today,” he said.
Even factoring in the predicted recession in his numbers, Charles said that the 11-county region in the Nashville metro area will add 79,781 homes.
About 15,000 of those will be built in Williamson County. But he thinks it could have been more, if the county had not just passed an Education Impact Fee, that charges developers up thousands of dollars for each new home they apply for a permit to build.
“These impact fees will really hurt the county over time,” Charles said, based on studying other places that have implemented them.
“That is the most stupid thing I have ever seen,” he said. “It irritates me. You can logically think. We need new schools so lets tax the new people moving in, because we are afraid to tax all the people already here a little more. It is so stupid, it has to be illegal.”