Nashville, Gulf Coast Florida Cities Hold Their Ground as Luxury Housing Hot Spots Despite Widespread Slowdown

In a sign of enduring appeal, many luxury housing hot spots from before the pandemic—and during—are now bucking the paralysis facing the U.S. housing market amid soaring mortgage rates. 

Take the area, which includes Davidson, Murfreesboro and Franklin, Tennessee. For the second straight quarter, it’s the No. 1 destination for luxury home buyers, according to The Wall Street Journal/Realtor.com Emerging Housing Markets Index for the third quarter of 2022, released Tuesday. 

Meanwhile, three other metro areas in the top 5 were in Florida, a state that saw a tremendous influx of residents over the last two and a half years.

“It’s not a major shakeup, but we are seeing things shift around,” according to Danielle Hale, Realtor.com’s chief economist.

And although the migration of high-net-worth individuals from high-cost, dense cities to the Sun Belt has slowed, it has created opportunities for those looking to move into urban markets. 

“Most data still shows that people are preferring suburbs or secondary markets, but we’re starting to see a little bit of a reversal, where rents are growing faster in the biggest cities,” Ms. Hale said, adding that housing trends often emerge first in the rental market. “Something to watch is whether we do eventually see a shift back toward more urban real estate.”

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Sixty metropolitan areas were considered for the luxury segment of the Emerging Housing Markets Index, which uses housing data for the top 1% of each market for the ranking. 

For the report, Realtor.com looked at data on the real estate market and other economic measures from the third quarter of 2022, analyzing a number of indicators to rank the most active luxury housing markets. Indicators include growth in housing supply and demand; median listing prices; a cost of living measure; small businesses; local property taxes; amenities; unemployment; wages; and the share of foreign-born residents—who contribute to the economic vitality and diversity of the area.

Outdoor Lifestyles and a Lower Cost of Living

Florida and Tennessee, as well as other Sun Belt locales, have experienced huge population growth because of their relative affordability, as well as the lifestyle they provide. 

“Nashville has been in the top 10 cities for population growth due to its affordable cost of living relative to other major metropolitan areas,” said Rebecca Norris DiNapoli, a Compass agent and nearly 30-year resident of the city. “It’s the quality of life; there’s no income tax; it has one of the nation’s strongest job markets. People are coming here from New York, California, Chicago, Atlanta, Texas…it’s kind of like a small town trapped in a big city.”

Nashville was seeing significant growth before the pandemic, and has thrived over the last few years—when interest rates were at or near historic lows and remote work allowed many affluent buyers more flexibility than they’d had before. The last few decades have brought tremendous growth to the area, and its small-town feel with big-city amenities—including two professional sports teams, the NFL’s Tennessee Titans and the NHL’s Nashville Predators, live music of all genres and performing arts groups like the Nashville Symphony Orchestra—has kept buyers interested. 

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“My husband used to complain about Nashville not having any good restaurants,” Ms. DiNapoli said. “And then—boom—All of a sudden there’s just so much to choose from. It’s just amazing and so he doesn’t complain about that anymore.”

Places like Nashville also offer affordability, especially if buyers are coming from high-cost markets such as New York, Chicago or San Francisco. Ms. DiNapoli is currently marketing a luxury compound on more than 4 acres in Brentwood, an affluent suburb of Nashville. The property features a 10,724-square-foot mansion, including a garage topped by a 1,664-square-foot guest apartment, plus a freestanding 4,081-square-foot entertainment complex where the likes of Dolly Parton, Carrie Underwood and Rascal Flatts have performed for charitable causes. It’s currently asking nearly $12.8 million. 

“It’s just a phenomenal property and people are like, ‘oh my gosh, I can’t believe you can get that house for that,’” the agent said about some of her out-of-town clients. 

There are also no state income taxes in both Florida and Tennessee, as well as Texas, which has two metro areas included on the index, Dallas and Austin. For cost-conscious buyers, that’s a big draw. 

“One thing that these Sun Belt locales have going for them is they are relatively more affordable,” Ms. Hale noted. “In Nashville and the Florida markets that are in the top 5, there’s some tax advantages as there are no state income taxes…there are a lot of very favorable tax local markets on the list.”

These regions also have warmer weather that allows for an outdoor lifestyle, and many of the communities cater to those looking for a slower pace and better quality of life. 

“There’s always been a natural migration to lifestyle destinations when people have flexibility in their lives,” said Jay Phillip Parker, CEO of Douglas Elliman Florida and the president of its development marketing team. He sees the red-hot Florida market normalizing, noting the frenzied pace of last year has slowed, allowing a “return to a balanced relationship between buyers and sellers.”

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The Top 10

Charleston and North Charleston, South Carolina, ranked No. 2 following Nashville, according to the index. 

The coastal city has been in the top 5 of the index all year, offering the outdoor lifestyle so many home buyers crave. Access to the water, four seasons and, again, a lower cost of living have brought an influx of new residents to the area. 

Three Florida locales, all on the West Coast, rounded out the top 5 rankings: North Port-Sarasota-Bradenton; Tampa-St. Petersburg-Clearwater; and Naples-Immokalee-Marco Island, respectively. 

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These areas are a little less expensive than places in South Florida, such as Palm Beach or Miami, and offer less density, low-rise buildings and white-sand beaches, Mr. Parker said. It’s become so popular that luxury brands are taking advantage. For example, The Ritz-Carlton Residences, Estero Bay, is set to bring 112 homes over two 22-story towers to the Sunshine State’s west coast, with the first phase opening at the end of the year. 

“There are people that look at that and say, ‘you know, I don’t want to be in the flashier, urban, busy, cosmopolitan part of Florida,” Mr. Parker said. “I would rather be in a little more laid-back, gentle, conservative area and I think that’s what’s driving it.”

He also hastened to point out the recent impact of Hurricane Ian, which took more than 100 lives and caused millions of dollars in damage. 

Despite the damage, he believes the area will continue to attract buyers and rebuild with better safeguards against future storms. 

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Much has been said about the migration away from California, but two destinations ranked sixth and seventh, greater Santa Barbara—located just north of Los Angeles—and the Silicon Valley area south of San Francisco.

“What we’re seeing [Silicon Valley] is the supply is not really keeping up with demand,” Ms. Hale said. “It’s not so much the demand itself is through the roof, but it’s more than that mismatch between demand and supply.”

The two Texas metros that made the list were Austin, No. 8, and the Dallas-Fort Worth area at No. 9. 

“Austin has seen an incredible increase in home prices, but even after that, it’s still a bargain relative to other major tech markets,” Ms. Hale explained. “It has a very different tax structure, and so I think is going to continue to be attractive to businesses. Workers will go where the businesses are because it’s that center of gravity draws people in. So I think as long as startups and more established businesses continue to favor Austin, it will continue to draw people in.”

That does not mean there won’t be a slowdown in the city, largely because prices have jumped so much, she added. 

“But as long as you have a steady influx of people, you’ll eventually see a balance between supply and demand,” she said. 

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The mountain town of Colorado Springs, Colorado, rounded out the list at No. 10. For outdoor enthusiasts, it offers year-round entertainment, from mountain biking and hiking to skiing and snowmobiling. 

Looking ahead, Ms. Hale is particularly interested to see if urban markets start to rebound on the sales side as they have started to do in the rental market. Currently, big cities like New York, Boston, Philadelphia and Chicago are still in the bottom half of the index, she added. 

And although the third quarter may not have been “a major shakeup,” next year is likely to be “challenging” for the U.S. housing market, Ms. Hale noted. 

“As the market continues to adjust to higher mortgage rates that have made a big hurdle for homebuyers, sellers are feeling that as a result,” Ms. Hale said. “But housing took on new importance in light of the pandemic and I think that that is likely to stick around. So even though it’s challenging, I think a lot of shoppers are going to try to figure out how to get into the housing market.”

(Mansion Global is owned by Dow Jones. Both Dow Jones and Realtor.com are owned by News Corp. The Wall Street Journal is also owned by Dow Jones.)