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Like Money in the Bank

Steady as she goes for home investment in downtown Memphis.

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The old adage goes that a good investment is one that is safe as houses. Buying a home can be as wise and secure an investment as any. But some headlines across America have recently told a different story, one of housing-industry downturn, market oversaturation, and depreciation in property values. One look at the skyline in Memphis will tell you this is a city of growth. Condominium developments are going up all over downtown. But do national economic indicators of an industry slowdown include Memphis? Is an investment in a home downtown still a wise move? Is it still as safe as putting money in the bank?

Tom Davis is the president of Henry Turley Realtors. His company currently sells condominiums downtown at the Lofts at South Bluffs, the Shrine Building, Riverside 648, CityHouse, Turning Pointe, and Carolina Lofts. Among other things, Davis is a numbers man. He runs down sales statistics at his properties, talking occupancy percentages, sale prices, and sale prices per square foot. He sifts through recent data and narrates the story of the downtown Memphis residential market that he finds there.

For example, Davis cites a current upswing in high-end units that have been either sold or are under contract. "It's showing that there is depth in the half-million-dollar price range in the condominium market in the South End," Davis says, "which is positive for the condominium market. The traffic has been good; interest has been excellent.

"The market fluctuated a little bit toward the end of summer and the first of September, but it's started to pick up, which has been really promising for us. ... The market is ever-changing. The market is what it is and also what people perceive it to be. We work with all that. ... We've had an upturn here in contracts and activity in October and November."

Sales successes are diverse in terms of sale prices -- and people are still snatching them up all across town. Not every development is at the same stage of readiness for residency; many condos are in earlier stages of progress. At the Riverside 648 condominium development, though, units are available for the taking. The immediate attainability is attractive to many buyers, Davis says: "We're seeing people responding to that availability. We've had people close out in those units as quickly as 10 days. That's an interesting part: People are ready to come in, they're ready to respond, they're looking for a piece of property that's ready, ready to go, and ready to close."

Tom Davis numbers (all Henry Turley Realtors sales) show progress in the market: Sales prices per square foot increased $17/s.f. between the 2nd quarters - of 2005 and 2006. Though increases in the same category were only $11/s.f. when comparing the 3rd quarters of 2005 and 2006  showing a breath - in the market  there is still a marked increase in property values in downtown Memphis.
  • Tom Davis numbers (all Henry Turley Realtors sales) show progress in the market: Sales prices per square foot increased $17/s.f. between the 2nd quarters of 2005 and 2006. Though increases in the same category were only $11/s.f. when comparing the 3rd quarters of 2005 and 2006 showing a breath in the market there is still a marked increase in property values in downtown Memphis.

Davis parses statistics as if they were tea leaves, predicting the future of downtown Memphis. Some questions have been raised in recent months in regard to the health of the downtown Memphis condominium market. But, as Davis sees it, the future is bright: "There is good news out there," he says. "We have a fairly healthy, fairly steady market."

One of the primary charges against the market has to do with supply and demand. With so many developments going up across downtown, fears have been voiced that the market can't bear the glut of residential property. Patti Sachenbacher is a relationship manager, or loan officer, with First Tennessee Home Loans. Sachenbacher has heard these concerns about market oversaturation. But these fears are unfounded, she says: "The market does not show signs of slowing down in the foreseeable future."

It's a sentiment echoed by Davis. He says the high-supply versus low-demand claim about the market is "more of a perception than a reality." The reality, Davis says, is that many of the developments in the public mind haven't gotten past the proposal stage yet, and those that have still have a ways to go before they will be completed.

The basis of negative views of downtown Memphis development seems to echo evidence of an industry slowdown nationwide. But the experts all seem to agree: Memphis is somewhat protected against national "bubble" trends, especially seen in markets in Florida, California, Nevada, and parts of the Northeast.

Sam Goff, director of marketing and a residential mortgage loan officer at Memphis-based Evolve Mortgage and host of WREC-AM 600's House Calls: All Things About Mortgages, says, "Over some of the other cities, Memphis has this advantage: Our market real estate has been undervalued as compared to the rest of the nation and still is. Where you hear a lot of talk that on the coast the bubble may not have burst but it's losing air, Memphis is not at that point. We are still so undervalued compared to other major cities that we have a long way to go.

"As a rule with Memphis, I think we're years away from getting at that bubble," Goff continues. "Memphis has always been a little bit insulated from the rest of the country economically because it's a distribution center [with] medical facilities here. Those two major areas of employment go on even in downturns for the economy. We aren't as susceptible to economic downturns as other parts of the country."

Davis sees it similarly, saying the data used to ascertain national trends are "percentages and numbers that are where markets have been accelerated so much that they also deflated. Memphis has not ever been that type of market."

Sam Goff
  • Sam Goff

On the flip side of the good news -- that the Memphis market doesn't flounder -- is news that every home investor should know: Expect gradual increases in property values rather than booming jags of appreciation. "[Overall] Memphis has plugged along for years at a 3-5 percent increase in property values for years," Goff says. Recent condo development has done better than that historical percentage increase, though, because of higher demand in the market.

Reports of the Memphis market's demise have been greatly exaggerated. In fact, Davis says, the opposite is true: "What's out there right now is what's left over of the projects that have been ongoing for two years," Davis says. "The product that is out there is diminishing every day because it's being sold.

"There will probably be fewer units [available] because the developments look to be down for next year compared to what they were. What will be on the market will definitely have a better chance of being sold."

One trend Goff sees in downtown residential units is that they "represent a great investment buy for people outside of Memphis. If you talk with any of the developers, they would tell you that." Investors from out of town are buying condos as second homes to visit on weekend vacations where they can partake in the city's lively entertainment scene. Out-of-towners are doing it "because they understand that there's great value in buying at this time here, that there's a great upside," Goff says.

Davis has seen the same trend: "We're on a lot of [out-of-towners'] targets. We might see people from Collierville, Boston, California, and Midtown all in one day."

The optimal time to invest in a home downtown is now, Davis says, After this current wave of development recedes, the next wave will necessarily be more expensive for buyers because of increases in land prices and the rising costs of labor and materials. "The people that really have an understanding of this will find that purchasing now will be a great benefit to them," Davis says. As a result, the resale market will get a boost as supply decreases. "It's a golden time for both [new and resale units]. From now until spring, it's a golden opportunity. Whoever doesn't already own should be looking to buy."

The bottom line, Davis says, looking in his crystal ball, is positive: "The downtown market is still vibrant. What we've brought to the market have been successful projects, and [these] will be sold out by the middle of next year or sooner. Other projects will be able to be brought into the marketplace sometime next year. ... In every market there's a breath," Davis says, adding that the current breath is "not a long one," that there is already evidence that it is on the way out.

"We're not trying to sell a pie in the sky," Davis says. But, he adds, you can put your money in the Memphis condo market and enjoy the home and the return on investment versus the relative risk of the stock market.

Next year promises to be another interesting year for downtown Memphis development. As this most recent band of condominiums sells out, will there be a lag before the next buildings are ready for occupancy? And with that reduction in supply, will downtown see another big surge of demand versus the current steady one? It's the kind of scenario that can drive property-value appreciation up. For those already in on the ground floor of the market, it's good news. Of course, for those buyers in a potentially coming market of high demand and low supply, it may not be good news: The money in the bank won't be theirs. ●

E-mail: LivingSpaces@MemphisFlyer.com

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