Year-on-year, Memphis and Shelby County saw a slight increase in new home permits. Third quarter numbers for 2014 were up 3.4 percent. However, new home permits were down 13.4 percent compared to the second quarter of 2014. The exact numbers were 212 new construction permits in the third quarter of 2014 compared to 245 permits issue in the second quarter.
Talk to 10 different builders and you'll get 10 different opinions but generally builders remain encouraged by the pace of new construction. Builders feel that low interest rates and continued increasing home prices are keeping buyers in the market. Buyers know these low interest rates can't last forever and prices are on the rise so they are making their move to first time home ownership now while current owners are moving up to brand new and larger houses.
A year ago, the average new home in the Memphis and Shelby County was 3,152 square feet and sold for $234,534. By the third quarter of this year, new home sizes averaged 3,261 square feet and cost $269,717. Both size and costs are on the rise.
When measured by the number of permits issued, Regency Homebuilders LLC was the most active builder for the quarter with 57 permits issued. These houses averaged 2,943 square feet and cost an average of $222,801. Magnolia Homes came in second with 16 permits, houses averaging 4,177 square feet and at an average cost of $422,182. Rounding out the top three is Grant Homes with 13 permits, houses averaging 3,807 square feet, and costing $228,298.
For the first nine months of the year, issued permits are down 9.6 percent compared to the first nine months of last year with 665 issued permits so far in 2014 compared to 736 in the same period last year.
According to the president of the West Tennessee Home Builders Association, the lower activity is the result of a shortage of building lots rather than a down turn in consumer buying activity. Almost everything under construction is being sold before it's completed. The demand is there. It's the lack of inventory that is driving prices higher and slowing the application for more permits.
Looking at permits by zip code shows Fountain Brook in the zip code 38016 to have the most new permits at 14, with houses averaging 2,618 square feet and costing an average of $188,346. Next comes, the Enclave neighborhood in the 38139 zip with 13 permits, but much larger houses averaging 4,798 square feet and costing around $474,500. Making the top three is Windsor Park in the 38133 zip code with 11 permits and in the middle for square footage and cost range at 3,045 and $246,748 respectively.
Homebuilders are finding somewhat of a relief in 2014 as houses are selling and prices are going up. However, a lack of buildable lots could be the next problem they face following the dearth of active building during the Great Recession.
It would seem that as an older, well developed southeast region, Memphis and Shelby County are becoming built out. People wanting to become homeowners are advised to do it sooner rather than later. Prices have no where to go other than up and up.
Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.