Knoxville Real Estate -- Trying to Gauge the Market's next move

But how long will the pain last? As the calendar turns to 2009, that's a crucial question for the local real estate market.

Last year's economic tailspin largely was driven by trouble in the national property market, as skyrocketing foreclosures led to tighter lending standards from banks and a nationwide slump in home sales that lingered into the end of the year. According to the National Association of Realtors, the annual rate of existing single-family home sales was down 8.8 percent in November, compared to the previous year, while the median price was down 12.8 percent.

Local real estate observers frequently point out that East Tennessee has fared much better than disastrous markets like California, Florida and Michigan, but 2008 was still a rough year on Rocky Top.

Besides taking a hit at the macro level - among local Multiple Listing Service, or MLS, listings, home and condo sales were down nearly 37 percent in November, and the median sale price of a three-bedroom home was down nearly 6 percent - the turmoil also was apparent in a range of individual projects.

Two of Knoxville's top local builders were sued by lenders over allegations of unpaid debts, while a pair of waterfront projects ran into heavy turbulence. In December, unsold lots and developer rights to Lowe's Ferry - a residential project in Blount County - were deeded back to Fifth Third Bank, after the developer's cash flow dried up. The developer estimated that 52 lots had been sold in the project and 88 were returned to Fifth Third, which retained many former employees of the developer to continue marketing the properties.

In Campbell County, Orlando-based development company Land Resource closed its sales office for The Villages at Norris Lake and stopped development work for the waterfront project near LaFollette. In July, the developer said buyers interested in lots had been unable to get financing and that as sales dried up, the lenders who financed his company's operations said they wouldn't continue to provide money and wanted to see a revised plan. In October, Land Resource filed for bankruptcy protection.