Housing Fallout Continues

2007 worst year in county in 25 years

By Eric Smith

SINKING FEELING: New housing permits and home closings sunk to their lowest levels in a quarter century last year in Shelby County. -- Photo Courtesy Of Memphis Area Home Builders Association

New data show 2007 was the worst year for new housing permits and home closings in Shelby County since the early 1980s, adding to the well-documented housing woes that stemmed from last year's subprime fallout and credit crunch.

The year ended with just 2,782 new residential building permits and 2,568 new home closings countywide, the lowest totals in 25 and 24 years, respectively, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com.

Those numbers mark a 36 percent decline in permits and 38 percent decline in closings from the previous year's totals of 4,356 permits and 4,174 closings, respectively.

The fourth quarter of 2007 was even worse, registering just 335 new residential building permits and 490 new home closings, the lowest Q4 totals in 26 and 25 years, respectively.

Those equal a 63 percent dropoff in permits and a 51 percent dropoff in closings from Q4 2006.

"The numbers ... were not surprising," said Don Glays, executive director of the Memphis Area Home Builders Association. "But the numbers are in comparison to the best year ever for home building in this country, so you have to ask the question, 'Are 2,500 sales in the Memphis market a bad thing or a good thing?' Certainly, home builders would want to see those numbers go back up to the 2006 level, but realistically, it's going to be a while before we get back up there."

Perfect storm

These data - the latest in a string of unflattering figures from last year - are included in Chandler Reports' newly published Builder Book, New Housing Analysis and Housing Inventory reports for Q4 and year-end 2007. Those reports include complete home sales and inventory data for Shelby County.

Moreover, the county's inventory of new homes was exceptionally high: 4,055 new homes were on the market as of Dec. 31, vs. 3,828 new homes as of Dec. 31, 2006.

That equals an 18.9-month inventory, which takes the current rate of new homes sold each month and factors how long it would take to sell them if no new homes were built or put on the market.

After a year in which the real estate and homebuilding industries took beatings in the press for everything from bankruptcies to foreclosures to sagging sales, the final tally seems appropriate.

Throughout 2007, but especially in the latter half of the year, a perfect storm was brewing. Consumer confidence eroded, subprime lending wreaked havoc, foreclosures skyrocketed, home
builders went bankrupt and mortgage companies tightened their guidelines. All that combined to deliver a knockout blow to home sales.

"The pendulum swung from being extremely easy to get a mortgage, whether you qualified or not, to tighter lending restrictions," Glays said. "However, that's how it should be. We're not opposed, in any way, shape or form, to the mortgage lending community doing the job that they should have been doing all along. Had they been doing it, we would not have been in this debacle that we had with the subprime situation."

Drops across the board

The 2,782 total permits filed in 2007 was the lowest since 1982's total of 1,337. The high in that 25-year period was 1993, which saw 4,962 permits.

While the number of permits filed slumped to its lowest figure in a quarter-century, the average sales price for new homes was $223,112 - a drop from 2006's average of $230,667 and 2005's average of $230,677, but otherwise the third-highest average in history.

Also, the average square foot for permits in 2007 was 2,717 square feet. That was lower than 2006 (3,047), 2005 (2,906) and 2004 (2,913), and slightly higher than 2003 (2,702).

As for specific areas of the county, the suburbs led the way in terms of both the volume of permits/closings as well as their decline, with many ZIP codes suffering drastic dropoffs.

From 2006 to 2007, the Arlington/Lakeland ZIP of 38002 registered the largest overall decline. It saw a 52 percent drop in new home starts (873 to 416) and a 38 percent drop in new home sales (868 to 538).

In the same span, the following submarkets all saw declines in permits and closings: the Cordova North ZIP of 38016, the Cordova South ZIP of 38018, the Collierville ZIP of 38017, the Downtown ZIP of 38103 and the Southeast Shelby County ZIP of 38125.

Meanwhile, only Germantown's combined ZIPs of 38138 and 38139, and the Westwood ZIP of 38109 registered gains in permits. And only the Fisherville/Eads ZIP of 38026 and East Memphis' combined ZIPs of 38117 and 38119 registered gains in closings.

With inventory of new homes starting to dwindle - two consecutive quarters saw closings outpace permits - home builders are hoping the downward trend bottoms out and turns back up.

"We're optimistic," Glays said. "I don't think we're going to get back to 2005, 2006 levels, but come this summer, I think you're going to see better sales than last year, you're going to see builders - particularly with interest rates the way they are - getting better dollar for their product."

Chandler Reports' Builder Book, New Housing Analysis and Housing Inventory reports - with complete home sales and inventory data for Shelby County - are available for purchase by calling 458-6419.