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VOL. 119 | NO. 24 | Friday, February 4, 2005

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Mortgages Seeing Decline

Mortgages Decline From Record Highs

Though still strong, lending drops as refinances dwindle


The Daily News

The residential real estate market in Memphis is still going strong, but the number of mortgages granted in 2004 decreased from the previous year.

A total of 68,727 mortgages were filed in Metro Memphis in 2004, declining from 82,182 in 2003. The total was still higher than 2002, when 63,635 mortgages were filed, according to The Daily News Public Records Database, www.memphisdailynews.com.

Still high-volume. And thats one of the main points area lenders point to when discussing the mortgage lending climate of last year. Its never a good thing to see business decline, but when the decline still results in one of the best years on record, its nothing to complain about.

Even though we were down from 2003, 2004 was still either the second- or third-best year on record, said Michael Wiegert, vice president of SouthTrust Mortgage and vice president of the Memphis Mortgage Bankers Association. So even this year if were down 10 or 20 percent from last year, its still going to put us probably in the top five or six best years ever as far as dollar production is concerned.

Mortgage loan volume came in at about $9 billion in 2004, compared to $10.75 billion in 2003, according to The Daily News database.

Refinance activity. While Memphis home sales set records last year, the number of refinances dropped dramatically, leading to the reduction in mortgage activity.

We probably saw a 30 to 35 percent drop in business, in the sheer fact that refinances went away for the most part, said First Tennessee Home Loans Fran Warner, 2004 president of the Memphis Mortgage Bankers Association. The housing market is still pretty strong as far as purchase business. Builder business is very strong. I think we just got back to regular life as we know it.

The refinance boom of 2003 probably wont be duplicated any time soon.

It was just hard to follow up that year, Wiegert said. Were not going to see another refinance boom like that in quite some time. Well all have to get used to the fact that were in a purchase market and new construction, and thats what we have to focus on.

Commercial transactions. The same could be said for the commercial real estate market.

A significant amount of the mortgage loans that closed in 2004 were a result of transactions as opposed to refinances, said Jim Beaty, senior director with L.J. Melody & Co. Commercially, we were driven by transactions, and transactions were driven by historically low cap rates, and owners were motivated to sell because of high prices that resulted from these low cap rates.

Overall, the Memphis market is going strong, Wiegert said.

Most peoples product mix had changed to a majority purchase and new construction with a minority of loans being refinances, he said. I think across the industry, you probably saw anywhere from a 10 to 20 percent decrease in business. I would say it would be more of a typical market. The market is still good in Memphis. Home prices are still good and I think the supply and demand is still good.

Back to normal. The decline in the overall number of loans made in 2004 has had an effect on the industry namely bringing it back down to earth.

2003 was a phenomenal year, but were still going to be OK, Warner said. Youre going to see some people get out of the business. Youre going to see some people consolidate just normal business practices that you see in any regular year.

Mortgage interest rates have not seen a drastic rise in the past year, although they have moved away from the historic lows prevalent throughout 2003.

You cant say rates are the reason things are a little slower, because theyre still great, Warner said. A 30-year, conventional fixed rate is 5.75 percent. You can get a 15-year fixed rate at 5.25. Thats pretty doggone good still. Weve seen 5.875. That was a bump up, so to speak, but it was just a temporary thing.

Perceptions. That bump up didnt stop some people from expressing concern.

People have it in their mind when they hear about the prime rate going up and they hear (Federal Reserve Chairman) Alan Greenspan is raising rates, and they automatically assume all rates are going up, Wiegert said. The fact is, yes, prime has gone up 1.25 points over the last 12 to 18 months. Its probably going to go up another quarter point this month, but our fixed rates have remained historically low. Were not where we were in June of 2003 when we bottomed out, but we are not much higher than that.

Strong market. Based on 2004, the new year will be a good one for the commercial sector.

2004 was a very good year for the commercial mortgage business, and based on rates and activity in 2005, we believe that this year will be as good as if not better than 2004, Beaty said. There is in most sectors of commercial real estate an excellent balance of supply and demand. (Rates) are going to go up, but theyre still going to be at very attractive lows, and commercial real estate makes a lot of sense at these levels.


PROPERTY SALES 56 289 2,908
MORTGAGES 55 226 2,009
BUILDING PERMITS 108 1,002 6,703
BANKRUPTCIES 42 248 1,225