VOL. 129 | NO. 149 | Friday, August 01, 2014
Home Market Still Facing Obstacles
By Amos Maki
After suffering through a brutal slump in the wake of the worst economic downturn in decades, the local real estate industry has slowly merged onto the road to recovery, though a few speed bumps that could slow progress remain.
Chandler Reports seminar panelists, from left, Pat Sandlin, CEO Community Mortgage Co.; Kim Grant Brown, president of the West Tennessee Home Builders Association; and Steve Young, Broker/Commercial Operations with Keller Williams Realty.
(Daily News/Andrew J. Breig)
While many of the key metrics that indicate the strength of the real estate market – number of home sales, homebuilding and lending activity, and the declining amount of foreclosures – remain off their historical averages, industry professionals remain cautiously optimistic.
That was the overarching theme industry professionals heard Thursday, July 30, at real estate information company Chandler Reports’ 2014 Mid-Year Master Your Market seminar at the Memphis Marriott East.
“There are no leaps and bounds but things are continuing to inch forward,” said Eric Barnes, publisher of The Daily News.
While the seminar included detailed insights on topics including residential and commercial sales, foreclosures and lending practices, the homebuilding industry dominated much of the discussion.
With unseasonably cold weather stretching further into the first quarter of the year than normal, and excessive rains in June, Shelby County’s homebuilding industry got off to a slow start in 2014.
Through the first six months of the year, builders have pulled 436 permits in Shelby County, down 17.6 percent from 529 permits pulled over the same period last year.
Builders sold 367 homes in Shelby County during the first half of 2014, down 13 percent from 422 homes over the same period last year. The average sales price was $272,806, up 6 percent from $258,338.
“There are a lot things you can’t do – you can’t pour concrete, you can’t do drywall – because of the weather, so it definitely had an impact on permits and people don’t want to get out and tour subdivisions, which hurt sales,” said Kim Grant Brown, president of the West Tennessee Home Builders Association. “I think what that’s done is it has delayed our year. We still have a good outlook on the rest of the year. I just think it’s going to be delayed.”
While the new home industry is healthier now than it was during the Great Recession, homebuilders still face underlying obstacles, including a growing shortage of developed lots.
Following the recession developers and some homebuilders were able to acquire bank-owned lots at a deep discount. Now, with the supply of cheap bank-owned lots in prime locations quickly disappearing and municipal fees on the rise, developers and builders are finding it difficult to make the economics of lot development work, which means fewer lots to build homes on.
With the time it can take to get utilities installed and receive municipal approvals or permits, builders are concerned that the lot situation could get worse before it gets better. The worry is that the Memphis area could ultimately be left with a severe shortage of new homes in the most desired locations just as consumers return to the market, or the shrinking inventory leads to steep home price increases that push potential buyers out of the new home market.
“The lot shortage that is rearing its head now is going to have a huge impact on our industry over the next three, four or five years,” said Brown.
Steve Young of Keller Williams Realty Inc. shared similar concerns over the lot shortage, saying the inventory of new homes becomes increasingly important as the supply of existing homes shrinks.
“The inventory that is out there is not enough to sustain us and the problem is there aren’t enough lots to build up the supply of new inventory,” Young said. “When we don’t have that new inventory we look at our resale inventory and we’ve all heard how that inventory is shrinking.”
Pat Sandlin, president and CEO of Community Mortgage Corp., said a key driver behind the increase in municipal fees is that communities are shifting the cost of infrastructure improvements to builders. Instead of taxpayers shouldering much of the burden for new roads or sewer lines, Shelby County municipalities are placing more of that responsibility on builders.
“Municipalities used to build infrastructure in anticipation of demand,” Sandlin said. “Today, they can’t afford it unless it’s fee based.”
Year-to-date, the metrics for Shelby County’s mortgage market all are running above where they were at this point in 2013. The number of mortgages has grown from 3,857 to 3,923 during that period; the average mortgage amount is up from $164,892 to $172,255; and volume has grown from almost $636 million to almost $676 million.
“Our volume is good, the rates are good,” Sandlin said. “We really are in a pretty good situation.”
Through June, 7,460 homes were sold in Shelby County, down 2 percent from 7,608 homes sold through the first six months of 2013. The average sales price of a home through June was $143,713, up 9 percent from $132,149 over the same period last year. The sales volume through the first half of the year was $1.072 billion, up from $1.005 billion over the same period last year.
The number of foreclosures continued their steady decline. Through June, there were 1,481 foreclosures in Shelby County, down 24 percent from 1,955 over the same period in 2013.
The number of foreclosures could be lower than expected because of new consumer protections enacted by the Consumer Financial Protection Bureau. Under the new guidelines, which went into effect in January, banks can only file a foreclosure when a person has been delinquent for 120 days, which may have just delayed foreclosures for several months.
“Those changes in the rules caused a temporary deflation in foreclosure notices,” Barnes said, “so watch for those numbers to go up.”
Chandler Reports is a division of The Daily News Publishing Co. Inc.