11% of mortgaged properties are still underwater

 After 6 years of “recovery,” that’s a bunch of financial pain.

While the bounce in home prices nationwide has rolled over, in trendy places like Nashville, New York, and San Francisco, they’re partying like it’s 2005. It’s hard to guess who has shorter memories: bankers, borrowers, or developers.

Real estate is on fire in the country-music capitol and is threatening to bulldoze what makes the city tick (music) for—what else—housing. Nashville is now so cool, the rent’s too damn high. Lydia Harrell worries she’ll be priced out of the city soon. Since moving to town two years ago, her monthly rent has risen 22% from $750 to just over $900. “It’s starting to get a little crazy. If it gets any higher, we’ll have to go somewhere else,” said Harrell.

Higher rents mean short supply and lots of demand, so developers want to tear down Music Row and build apartments and condos. Music stars like June Carter Cash are protesting, but property values are skyrocketing.  In July, the site that houses Studio A was sold to a developer that has said it may be too decrepit to save; many fear the space will be razed and replaced with condominiums.

Maybe Dolly, Porter, and Johnny made hit records on Music Row, but these are just buildings, and unimpressive ones at that. These are pretty ordinary, cheap, architecturally indistinct and disposable structures that nonetheless are consecrated because they produced standards that are part of the American popular canon.

Now lots of people want to enjoy Nashville’s magic, nearly everyone in town looks like the cast of Nashville.  But this one-horse town is growing up, and Music City is in danger of turning into a landscape of luxury apartments, mixed-use retail, and other amenities.

Developers in New York City think they’ve built enough office buildings, so even they are shifting to luxury housing. The NY Times recently wrote: there’s a trend in (NY) city in which a seemingly insatiable demand for luxury housing has upended the traditional pecking order in the real estate world. Building glamorous office towers for Fortune 500 companies is not the surefire route to fame and riches it once was.  With the cost of land soaring and high-end apartments commanding soaring prices, developers whose reputation and wealth has rested on gleaming office towers are now leaping into the residential market in the hunt for profits.

High-end apartments in Manhattan and parts of Brooklyn sell for $4,000 or more per square foot, far more than most commercial tenants are willing to pay. The changing economics of the real estate market have made housing more appealing.

Land costs have doubled and tripled in recent years to $600 a square foot and more as residential developers snapped up one site after another. Commercial developers have often found themselves priced out of the market.

And San Francisco housing prices are going into never-never land. More wealth is concentrated in the San Francisco Bay Area than just about any other place in the nation. Google alone, the story goes, minted 1,000 millionaires when it went public. Ditto Facebook. And Twitter? Some estimate 1,600. Tech worker bees are doing just fine, too, with average base salaries now north of $100,000.
San Francisco has water on three sides and zoning is beyond tough, creating a supply and demand problem.  San Francisco supervisor Scott Wiener, a proponent of new housing, told the Times, “The system is intentionally designed to make it as difficult as possible to build new housing.”

Of course if you’re rich you just pick out the hipster house you like (even if it’s not for sale) and have a hired hand knock on the door and offer double what the house is worth in cash. Most normal people are priced out of the market.

Note to those uber-rich residents in Music City, the Big Apple, and the City by the Bay: Time marches on, markets go up and down, money is made and lost, developers overbuild, and the foolish will overpay and live to regret it.