Local Realtors Expect Strong Sales to Continue

It comes as no surprise to Walter Molony that after five consecutive years of record-topping home sales nationwide, a slowdown is predicted for 2006.

"You can't keep setting records every year," said Molony, a spokesman for the National Association of Realtors.

Unprecedented boom. For the last five years, the housing market has been booming nationwide. It reached its peak in 2005. While NAR predicts a slowdown in 2006, Molony said he expects sales to remain strong.

Nationally, existing home sales are slated to rise 4.7 percent to $7.1 million in 2005. Next year, a decline of about 3.7 percent to $6.84 million is expected. Likewise, new home sales are projected to increase 7 percent to $1.29 million in 2005, then drop 4.8 percent to $1.23 million in 2006.

Even with the decline in both markets, 2006 is forecast to be the second best year in the real estate market, falling only behind 2005.

Memphis market. Local real estate professional William Mitchell said he doesn't believe the drop will be as significant in the Memphis area as it could be in certain hotspots - California, parts of Florida, Las Vegas and New York, to name a few.

"We're optimistic about the local real estate market," said Mitchell, president-elect of the Memphis Area Association of Realtors. "Memphis is more of a consistent market for real estate. We don't experience the high highs or the low lows."

Kirkpatrick said despite growing demand and rising asking prices for new homes and Downtown condominiums, Memphis is still an under-priced market compared to other markets.

Factoring variables. Molony said various micro-economic issues were used in predicting the 2006 market. Aside from examining historic housing trends and demand, other factors include economic growth, inflation, income, unemployment, consumer confidence and, most notably, interest rates.

"We are seeing inventory levels picking up and we're projecting a slow but modest rise in mortgage interest rates," he said.

Crye-Leike Realtor Angie Kirkpatrick agreed.

"Interest rates have been creeping up each year, making it harder to sell," she said.

Other disruptions such as recessions, natural disasters and tax increases also result in slower home sales.

Molony said the market has been affected by minor changes that have escalated, noting that national media outlets have featured stories predicting the bursting or crashing of the housing market based on what he called "junk economics."

Though numbers will reflect a slight decrease, he said, the market should remain at peak levels.

Existing versus new. For 2006, Mitchell anticipates a 2 percent to 3 percent increase in home sales.

"In the Memphis and Shelby County area, new home sales are up 7 to 8 percent, and existing home sales were up 4 to 5 percent in terms of the increase above this time last year," he said.

Kirkpatrick noted that 2005 has been her best year.

She said the majority of her buyers have purchased existing homes, adding that buyers have higher expectations and are becoming more selective in the types of existing homes they are purchasing.

"Years ago, people didn't want to live in Midtown if they had children," she said. "They factored in schools. Now you see people buying homes in Midtown and also Downtown. They are looking for homes with updated kitchens and bathrooms and central heat and air.

"Condos are doing very, very well, as well as zero lots. Today, people want homes that don't require much maintenance. When you have both homeowners working, they don't have time."

Existing homes account for about 85 percent of the national market. Molony said new home construction activity is expected to slow next year, but remain at historically high levels.

Balancing the market. In 2004, the average list price for an existing home in Memphis was $136,005. In 2005, the list price to date has increased to $142,862.

Molony said the predicted sales slowdown on the national level in 2006 should improve housing inventory levels, slow down price increases and level the playing field among buyers and sellers.

"We're returning to a balanced market," he said. "We've had more buyers than sellers in the market. It's been favoring sellers, which is why home prices have been rising at historically high rates."

This imbalance in supply and demand is one factor behind sharp price increases nationwide, Molony added.

"Nationally, we are looking at about a 12.7 percent rise in prices this year," Molony said. "If we were in a normal market right now, you would be seeing home prices increase 4.5 to 5 percent."

Next year, Molony said, NAR predicts a 6.1 percent rise in home prices.

Job Growth, Trade and Hurricanes Drive Commercial Real Estate, Says NAR

12/14/2005 10:31:00 AM

To: National and Business Desks

WASHINGTON, Dec. 14 /U.S. Newswire/ -- The impact of hurricanes is affecting many local commercial real estate markets, but job creation and increased trade are shaping the overall market, according to the National Association of Realtors(r) (NAR) COMMERCIAL REAL ESTATE SPOTLIGHT.

David Lereah, NAR's chief economist, said it takes time for commercial real estate to respond to changes in the overall economy. "There is a well known lag effect in commercial real estate, with a strong rise in jobs over the last two years currently bearing fruit in terms of higher demand for commercial space, especially in the office sector," he said. "In addition, increases in trade are benefiting industrial properties such as warehouse and distribution facilities."

NAR President Thomas M. Stevens from Vienna, Va., explained other factors at play in commercial real estate sectors. "People displaced by hurricanes are having a large impact on the apartment market across many areas of the South," said Stevens, senior vice president of NRT Inc. "Consumer spending is sustaining retail real estate, but that sector is seeing relatively modest growth and conditions vary widely."

Condo conversion accounted for a big increase in multi-family transactions this year. "The overall flow of capital into commercial real estate is at an unprecedented level, with multifamily transactions accounting for about a third of the total," he said.

Through the first nine months of 2005, a record of $188 billion in investment grade real estate traded hands, not counting transactions valued at less than $5 million. "These figures demonstrate the value of commercial real estate as part of a diversified investment strategy," Stevens said.

The NAR forecast for four major commercial sectors includes analysis of third-quarter data in 57 metro areas tracked. The sectors include the office, industrial, retail, and multifamily markets, plus some additional information for the hospitality sector. The metro data were provided by Torto Wheaton Research and Real Capital Analytics.

In the office sector there is sustained improvement, driven by approximately 580,000 new office jobs created over the last two years. Vacancy rates are projected to drop to 13.0 percent in the fourth quarter and to 11.0 percent by the end of 2006, compared with 15.4 percent in 2004. Office rents are seen to rise 4.0 percent for 2005 and another 5.5 percent in 2006; they were essentially flat in 2004 with a 0.4 percent gain.

Areas with the lowest office vacancies currently include Ventura County, Calif.; Orange County, Calif.; West Palm Beach, Fla.; New York City; and Fort Lauderdale, Fla., all with vacancy rates of 8.1 percent or less.

Net absorption of office space in the 57 markets tracked, which includes the leasing of new space coming on the market as well as space in existing properties, is expected to be 84.4 million square feet in 2005 and 78.3 million in 2006. This compares with 77.7 million square feet absorbed in 2004 and only 20.0 million in 2003.

The Washington area led the nation in total office space absorption in 2005, followed by New York, Phoenix, Los Angeles and Dallas.

The industrial sector also is experiencing a decline in vacancy rates – forecast at 9.5 percent in the fourth quarter and 8.4 percent a year from now. In 2004, industrial vacancies stood at 10.9 percent. Industrial rents are likely to grow 2.1 percent for 2005 and 3.4 percent in 2006, following a decline of 0.6 percent in 2004.

Trade patterns continue to benefit industrial property, but congestion in Southern California is diverting some traffic from China through the Panama Canal in order to reach Eastern markets. The areas with the lowest industrial vacancies are West Palm Beach, Fla.; Los Angeles; Riverside, Calif.; Long Island, N.Y.; and Las Vegas; all with vacancy rates of 6.1 percent or less.

Net absorption of industrial space in the 57 markets tracked should be 251.3 million square feet in 2005, and 216.1 million in 2006, up strongly from 176.5 million square feet absorbed in 2004 and a very modest 16.5 million in 2003.

In the retail sector, the vacancy rate is expected to ease to 7.2 percent in the fourth quarter and 6.9 percent a year from now, down from 7.5 percent in 2004. Rent growth is seen at 3.8 percent in 2005 and 3.6 percent in 2006, up from 3.3 percent in 2004.

Retail markets expected to have the lowest vacancies – forecast through 2007 -- include Las Vegas; Oakland, Calif.; San Jose, Calif.; Ventura County, Calif.; and San Francisco.

Net absorption of retail space in the 57 markets tracked is projected to be 56.2 million square feet in 2005 and 31.6 million in 2006, compared with 27.1 million in 2004.

The apartment rental market -- multifamily housing -- should see vacancy rates at 5.3 percent in the fourth quarter and 4.8 percent by the end of 2006, down from 6.2 percent in 2004. Average rent is likely to rise 2.8 percent in 2005 and 5.6 percent in 2006, up from a 1.5 percent increase in 2004.

Areas with the lowest apartment vacancies are Fort Lauderdale, West Palm Beach, Miami, Orlando and Los Angeles, all with vacancy rates of 2.7 percent or less. Houston and Atlanta area vacancies plummeted due to demand by hurricane evacuees, and will lead the nation in absorption of units during 2005.

Multifamily net absorption is forecast at 316,000 units in 57 metro areas tracked in 2005, and 264,000 in 2006, compared with 264,300 absorbed in 2004 and a modest 159,400 units 2003.

After Houston and Atlanta, the strongest multifamily absorption this year is expected in Chicago, Dallas and Boston.

Purchases of multifamily property rose 90 percent in 2005 -- much of the rise is attributable to conversion of apartments into condos, with 150,000 units converted in the first 10 months of 2005. Converters dominate investment activity in every region except the Southwest, where private local buyers are most active, but conversion is expected to subside in 2006.

A fifth commercial sector, hospitality, is experiencing temporarily inflated occupancy levels that result from demand by hurricane evacuees. Hotels and motels in cities near impacted regions are seeing the greatest demand, but Houston, Dallas-Fort Worth, Atlanta, San Antonio and Memphis also are experiencing higher occupancies as a result.

Hospitality markets projected to have tightening room availability in 2006 include Los Angeles; New York; Phoenix; Portland, Ore.; and San Diego.

The COMMERCIAL REAL ESTATE SPOTLIGHT is published by the NAR Research Division for the Realtors(r) Commercial Alliance (RCA). The RCA, formed by NAR in 1999, serves the needs of the commercial market and the commercial constituency within NAR, including commercial members; commercial committees, subcommittees and forums; commercial real estate boards and structures; and NAR affiliate organizations. These organizations include the CCIM Institute, the Institute of Real Estate Management, the Realtors(r) Land Institute, the Society of Industrial and Office Realtors(r), and the Counselors of Real Estate. The RCA also provides commercial products and services.

Memphis has protection against housing bubble

Modest growth in sector bodes well for city
By Carolyne Park and Christopher Sheffield
Memphis Business Journal
Updated: 7:00 p.m. ET Nov. 27, 2005

The future of the U.S. housing industry is being debated at all levels around the country -- from business to banking, and media to academia.

At the heart of the debate is whether or not the "bubble" of inflating home prices will burst, causing a sudden widespread drop in home values. It's a scenario causing anxiety among homeowners, investors and prospective home buyers, who fear owning a home may not be as safe an investment as it once was.

It is an issue especially hot in thriving metropolitan cities and coastal areas where home prices have skyrocketed in recent years in response to seemingly insatiable demand, spurred in large part by second-home buyers and investors hoping for big returns.

While there are some warning signs in select parts of the country, most agree that the Memphis housing market is immune from danger.

"There is no bubble," says Sue Stinson-Turner, president of the Memphis Area Association of Realtors (MAAR), who has been in the industry 27 years.

A recent report by the National Association of Realtors, Home Price Analysis for Memphis, supports arguments that Memphis, like many cities and towns across the country, is safe from a major market downturn. Key points of the report are that average home prices here have risen steadily rather than rapidly, the Memphis market maintains a healthy balance between supply and demand, and area homebuyers tend to buy what they can afford.

William Mitchell, vice president broker/manager with Crye-Leike, Inc., and MAAR's 2006 president-elect, says buying a home in the Memphis area is still a good deal. The market has a wide selection of homes at a full range of prices to meet the needs of almost any buyer. And with an average home price 30% below the national average at $142,400, homes here are affordable.

"If anything we are an under-valued market," Mitchell says.

Historically, developers have been conservative, and home prices in the Memphis area have increased steadily, rising 2% from 2003-2004, and 16% over the last three years. Like elsewhere in the country, the local housing market has seen a boon from 45-year-low interest rates in recent years. With lower monthly costs, those low rates meant more people could buy homes that couldn't afford them before.

Now those rates are starting to go up again. John Gnuschke, director of the Sparks Bureau of Business and Economic Research at the University of Memphis, says it is the rising interest rates that will have the most impact on the Memphis housing market. It is the first-time homebuyers with marginal incomes that will be affected the most. Instead of buying that first home, many of those people will have to remain renters.

But NAR expects demand for new homes here to remain strong as the local job market continues to grow, with 8,100 payroll job additions over the last 12 months, and another 10,000 predicted over the next 24 months. The association also predicts mortgage rates will hover around 7% by the end of 2006.

Charles Ricketts, vice president at Pulaski Mortgage, says Memphis' biggest protection from a housing bubble burst is its solid and consistent employer base. FedEx, with its 30,000 employees, and a large government sector, means wages are steady and moderate and thus housing prices are, too.

Ricketts says he has seen a slow down in mortgage activity in 2005 from previous years. Last year, Pulaski's Memphis operations finished with $217.7 million in mortgage volume. The company was budgeting for a 25%-30% drop for 2005, but Ricketts says it is no longer expected to be that significant.

Pulaski, which has been operating in the market since 1976, finished 2004 ranked sixth in loan volume, according to information from the Home Mortgage Disclosure Act report. First Tennessee Home Loans came out on top with $1.10 billion for 2004, less than a percent higher than 2005. Of the top 25 mortgage lenders in the Memphis Metropolitan Statistical Area, those that stayed on the list from the previous year still saw their loan volume drop, in some cases significantly from 2003 to 2004, and most expect to see a continued drop in 2005.

Millington-based Patriot Bank, which had total volume in 2004 of $89.2 million, held on to its 14 place ranking from 2003 despite a drop of $13 million in loan volume.

Of the top 25 mortgage lenders, Patriot Bank would rank as one of the smaller players. Patriot vice president Keith Barger says Patriot has a keen interest in what happens in the home financing market.

"As a small community bank, we tie a lot of our efforts into residential real estate," he says.

Patriot wants to be a major player in the local mortgage market.

Barger says his bank may actually see a 10%-15% increase in mortgage volume for 2005 over 2004. Much of that will come from the bank's lending in Tipton County and east Shelby County around Collierville.

Mitchell, of Crye-Leike, says higher rates may mean homes don't sell as quickly, but the demand will remain.

"I remember the days when we thought if it would just get down to 12%, we'd sell a lot of houses," he says.

Rapidly rising construction costs are another factor expected to affect the local housing market.

"It kind of puts a floor on how much housing prices can fall. In that sense, it provides some degree of protection," Gnuschke says.

For the future, NAR predicts Memphis' housing market will continue to benefit from baby boomers buying second homes, often as investments for retirement. The local market may also increase as a retirement destination for those seeking reasonable living costs.

"I think we're going to see a slow down," Gnuschke says. "I don't think the housing bubble will bust, I think it will deflate."