Memphis, TN, Foreclosures Spike As Bank Settlement Takes Hold

Now that the official settlement of the “robo-signing” scandal has been completed, and banks are getting back to business as usual, foreclosures in Memphis are beginning to spike significantly. According to an article by local Memphis real estate broker, Joe Spake, which appears on his blog at the “Memphis Real Estate Buzz” Year-To-Date, foreclosures in Memphis are up 35.4% over 2011.

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It’s likely this is because banks in Tennessee reduced their foreclosure filings in 2011, while the “robo-signing” scandal was litigated. The lawsuit was finally settled early this year. Now that the details are in place, the banks are free to proceed with new foreclosures. It’s becoming increasingly clear that the banks are now making up for lost time.

The pace of residential sales has also picked up in Memphis. But as reported in the Tennessee Bankruptcy Lawyers Blog, prices are still being dragged down.

The word through the real-estate-investor-association-grapevine is that Memphis is “hot” with foreign and out-of-state investors. Undoubtedly this is a big part of the increase in sales, along with the frequent bidding wars cited in the bankruptcy blog. Even with the competitive bidding among investors, Memphis prices have only budged 0.5% from 2011 to 2012.

Memphis does have an elevated foreclosure rate, a lot of “shadow inventory”, and the official 2010 census indicated that the city is losing population. Perhaps the suburban areas are growing. But fundamentally, if the entire Memphis MSA is losing population, this would imply that investors need to be cautious. There is a lot going on here to add new inventory to the market, even as the population seems to be dwindling. This is not a good fundamental if this trend were to continue.

Memphis has a lot going for it. It’s located right on the Mississippi river, and is the midwest hub for shipping by water and air. Fed Ex has it’s main shipping facility in Memphis, and river shipping is also big here. Industries dependent on this prime and unique location are going to be here for the long haul.

Memphis also has a reputation as one of the great music towns in America. From the “King of the Blues”, BB King, to the “King of Rock’n Roll”, Elvis Presley, Graceland and Sun Records, Memphis has long been a mecca for musical artists and fans alike.

As with any market experiencing housing inventory that exceeds “available demand“, (that is, people who actually plan to live in the property), investors should proceed with caution. Owner occupant buyers should do likewise. Some neighborhoods are going to do much better than others.

For best results be aware of the foreclosure and/or rental activity in the area where you plan to live or invest. Investors should negotiate hard on REOs and keep a very conservative approach to property values and cash flow assumptions. Owner occupant buyers should also expect more leverage in negotiations for the average property. The fundamentals do not appear to support any significant increase in property values for the rest of 2012. Take your time and “buy right”.
Donna S. Robinson is a 17 year veteran of the real estate industry. She is a real estate investor, licensed agent, speaker, author and consultant. Her website is Realty Biz Consulting.