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VOL. 126 | NO. 19 | Friday, January 28, 2011

Ongoing Foreclosure Crisis Far From Over

By Sarah Baker

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The foreclosure crisis will get worse before it gets better – with 1 million homes foreclosed in 2010 and even more projected for default in 2011.

That was the message a room full of real estate professionals received this week when real estate information company Chandler Reports hosted its quarterly seminar on Shelby County Market trends, “Master Your Market: Year-in-Review.”

The coming year also will be marked by a cut in Social Security taxes, rising consumer spending and rising stock prices. And while the hiring market is slowly seeing an uptick, job insecurity remains the most pressing issue locally and nationwide.

All these factors will have an impact on the housing market.

“When employment peaks, that’s when real estate prices start falling,” said David Lenoir, Shelby County Trustee.

For the economy to heal, it is imperative that the unemployment levels drop below 8 percent, the credit environment is loosened, lending and mortgage rates don’t see another spike and improvements are seen in consumer confidence and government financial conditions. While consumer debt has improved, federal debt has increased at an annual rate of 16 percent.

“The consumer is doing a good job of cleaning up their balance sheet,” Lenoir said. “The government has not done as good of a job.”

A lot of the “working poor” have income, but not a lot of assets, meaning they have zero net worth.

And an estimated 40 percent of mortgages are underwater. Home prices must fall an additional 23 percent to revert to the long-term average. But the good news is that Memphis has historically been very affordable.

The average sale amount for homes in Shelby County increased 1 percent to $124,278 in 2010, according to data from Chandler Reports, www.chandlerreports.com. But the average sales amount increased due to higher average price on bank sales, which made up 32 percent of all sales last year.

Year over year, however, bank sales dropped 18 percent. Even though the top 12 residential sellers in 2009 were banks, more private investors have moved up to the top of the list. Memphis Invest LLC sold 178 homes averaging $60,201, followed by Memphis CashFlow GP (128; $57,671) and Memphis Investment Properties (109, $48,210).

While overall foreclosures were down 9 percent, average foreclosure amounts were up 30 percent. All ZIP codes had a decrease in foreclosure notices except East Central/Poplar Perkins’ 38117 (4 percent), Germantown’s 38138 (7 percent) and Germantown East’s 38139 (21 percent). Frayser remains the leading inventory holder with 291 properties at the end of the quarter valued at $20 million.

It’s evident that subprime lending drove the bubble in Shelby County, said Phyllis Betts, director of the Center for Community Building & Neighborhood Action at the University of Memphis.

“In the absence of the briber, we’re looking at the new normal,” Betts said. “We have this ball of twine that got really big and we’ve got to unwind it somehow.”

Too often missing from the discussion is that different pathways to foreclosures have different implications for recovery, Betts said. Shelby County, along with the rest of the nation, is suffering from the aftermath of marginal buyers, distress-driven refinancing, lifestyle-driven equity borrowing and overextended investors.

“Pushing the envelope only works in a strong economy,” Betts said. “The housing bubble is driven locally by marginal buyers in modest neighborhoods.”

On the commercial side, 2010’s fourth quarter had the largest increase in sales for the year, up 48 percent from the same period last year.

The most commercial sales went to vacant land more than one acre with 113 recorded, followed by warehouses with 82 and apartments with 75. Churches, schools and special purpose properties had the worst year-to-date performance, down more than 25 percent from 2009.

Despite Oakhaven/Parkway Village in 38117 having the most commercial sales – 56 valued at $84 million – the same area had the most commercial foreclosures, claiming 16 with an average appraisal of $716,888.

Top lenders by total loans were Regions Bank with 23, First Tennessee with 15 and First Commercial and BancorpSouth with 13 each.

“I know y’all think lenders have gone crazy, and there has to be a reason for that,” said Lisa Reid, executive vice president and division of head of the mortgage department at Magna Bank. “2009 was a very, very tough year for lenders – our world was literally upside down.”

Too many nonqualified people were put in homes, and lenders had to tackle applicants not disclosing debt and income fraud, she said.

But an uptick in activity is giving Reid reasons to be bullish about the market’s turnaround – including Swedish manufacturer Electrolux bringing more than 1,200 jobs to town with its $190 million manufacturing plant in Frank C. Pidgeon Industrial Park, and Pinnacle Airlines Corp., which will stabilize the financial straits of One Commerce Square this fall, bringing more than 600 employees Downtown.

“We’ve got a lot to be excited about,” Reid said.

Chandler Reports is a division of The Daily News Publishing Co. Inc.

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 74 312 15,378
MORTGAGES 125 389 20,168
FORECLOSURE NOTICES 0 86 3,972
BUILDING PERMITS 0 441 36,283
BANKRUPTCIES 53 231 14,574
BUSINESS LICENSES 9 64 5,193
UTILITY CONNECTIONS 71 312 22,129
MARRIAGE LICENSES 0 73 4,736

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