Behind the Headlines – March 31, 2017

Behind the Headlines – March 31, 2017


– [Announcer] Production
funding for Behind the Headlines is made possible in part by: the WKNO Production Fund, the WKNO Endowment fund, and by viewers like you. Thank you. – The growth and impact
of the real estate market. Tonight, on Behind
the Headlines. (Behind The Headlines
Theme Song) I’m Eric Barnes, publisher
of the Memphis Daily News. Thanks for joining us. I’m joined tonight
by Steve Lockwood from the Frayser Community
Development Corporation. Thanks for being here again. – Thank you. – Wendy Greenlaw’s
with Chandler Reports, the real estate
information service. Thanks for being here. – Thank you. – And Gary Thompson is with
Boyle Investment Company. Thanks for being here. – Thanks for having me. – So, I’ll start
with you, Wendy. In terms of an overview of the market,
– Sure. and I should say,
Channel Reports is a division of the Daily News. You’re here because Chandler
tracks, in great detail, all the home sales,
the building, foreclosures, and so on. So let’s talk about 2016
and the high points for you in terms of what was good,
maybe and what was bad. – Sure, so there are
a lot of dynamics that occurred last year. As everyone knows,
we had record setting average record sales prices. So home sales are skyrocketing
for several reasons. There’s an extremely
low inventory right now of homes on the market for sale. We had bank sales and
foreclosures at historic lows which is bumping up the
sales prices as well. New home sales activities
started to pick up. Across the county, we had
more new home starts than we’ve had since the start of
the recession back in 2007. Average new home sales prices are skyrocketing
to over 300,000. So overall, it’s an
interesting year, there’s a lot of dynamics. The prices are going
up, but that inventory is still extremely
low and we’re seeing these trends continue
even into this year. – And when we talk about
inventory, that’s the number of sales that are out there, the number of homes
– That are on the market. that are out there to be sold,
– Right. that are available. That again, there
just aren’t that many, is the whole point
of the low inventory. – Right, and a lot of people
might say that’s because during the height of our
market, 2004, ’05, ’06, we had all these new
homes on the market. There were thousands
of them and now we have a very limited supply of those. So the options are not
there for the homeowners or home buyers that are seeking. – Okay, and we’ll dig into
all, there’s parts of that, but just as an overview
that kind of sets the stage. And, Gary Thompson from
Boyle, you’ve been at Boyle for twenty-something years?
– Right, 22 years. Doing real estate
development, I mean what, so you’ve seen the
highest of the highs and the lowest of the lows. I mean, the Great
Recession of ’08, ’09, period.
– Correct. Your take on this year that,
the last couple of years and where we’re going
now in the Memphis area. – Well, I think it’s
very encouraging. You’re right, I started in the residential development aspect
of my time at Boyle in 2002. So just as we were coming
out of the recession, going into what everyone
refers to as the bubble, and pretty much anything you
developed, you could sell. Anywhere, any price, it
was sort of ridiculous. We all knew it was
ridiculous, but we certainly didn’t see it bursting
and staying burst for almost a decade. So what we’re seeing
now is encouraging, but we still are
a third of normal pre-bubble housing starts. And so that is creating
an environment where it’s difficult still
because builders can’t find lots if they can. And everybody’s rushing;
we’ve had a lot of dynamics in the market in
terms of the schools and how the public
schools have changed. Families are families, and
they’re still looking for a safe place to live, with
good schools where they can educate and take care of
their kids and their families. And so, with the school
changes, that’s sort of pushed everybody into certain arenas
where they’re developing. So there may be areas
that you can develop, or there are lots,
but they’re not in those school districts. So there’s a lot of
dynamics that are still going on in the market. – And we’ll come back
to a bunch of that, but I want to get
Steve, your take. Frayser was a
hard-hit community, like a lot of working
class communities around the country
during the recession. How has Frayser rebounded
or not rebounded from the Great Recession? – The last couple
of years, really, have represented, and
you all know this, you do the stats, what really
has been an investor feast. So, Wendy and I have been
looking at these numbers and we think that
probably 90% of the sales in the last several years
have been to investors. – In Frayser.
– In Frayser, and neighborhoods like Frayser. And some of those, by the
way, are good investors and some are
predatory investors. There’s both kinds, and there– – And investors, just to
talk about what that means, ‘cuz it’s a real important
dynamic county-wide, not just in Frayser.
– Sure. Investors could be anything from a big Wall Street hedge
fund to a mom and pop who lives in Memphis,
who has a second home that they rent out. Single family home, maybe a duplex,
– Yeah. that is rented and
owned by someone else. – I would say that the most
interesting and big dynamic is folks who come in and buy a
house, these days, for 20, fix it up, sometimes
well, sometimes poorly, sell it to a person
in California for 64, keep the rental management, and sometimes that helps the
street and the neighborhood and sometimes it’s destructive. The most recent dynamic is that, you know the reason
why this was happening is that the banks were not
able or not willing to lend within the 30 to
50,000 dollar range, and this is in a neighborhood
where the average price is now up to 33, sales price, okay?
– Yeah. Now, and by the way, that’s
a great improvement from ’09. So what we’re finding though,
in the last year, is the banks have really changed their
tune, and are totally willing and are actually scrambling
to make these loans, so we think there’s a
real opportunity for the owner-occupant market
to come back in. Thus our campaign to push that, not because it’s just
something that we want, but this is the time
when that can happen. – And alright but really,
just, again we throw around these real estate terms
but just people who, they buy their house,
they live in their house, they’re paying a 30
year mortgage over time. That is what really
dried up in Frayser. – It totally dried and
if you come in and buy a 40,000 dollar
house in Frayser, which you can buy a pretty
nice house for that, your mortgage is
340 dollars a month. It’s just ridiculously
affordable. – Much, much less than what
you would probably pay in rent. – Our slogan is don’t
rent for 700, buy for 480. – Yeah, right.
– Yeah. And Wendy, this investor,
although it’s very heavy in Frayser and neighborhoods like that,
– Right. and that’s a national problem, when the hedge funds got in. There are hedge funds
that own thousands of homes in Memphis.
– Yes. Most people don’t know that.
– Mm hmm. But also, and Steve
just said, talked about the California couple who
buys a house in Memphis, and it’s not just in Frayser. It can be in Bartlett, in can be in Burlington.
– Arlington, it’s everywhere. Don’t you think most
people would be shocked that this is going on at
the scale it’s going on? – Yes, absolutely. To say that 31% of
all of the homes in Memphis, Shelby County,
are investor-owned, and these investors are
everywhere, from Australia, Korea, Israel,
California, New York. People have no idea
this is going on within their neighborhoods. Some of them do because
you have people that aren’t properly managing them, and
they can drive down the street and say, “These must
be rental units,” but in a lot of areas–
– Poorly managed rental units – Correct.
– Yeah. Correct, and even ones
that are properly managed, sometimes the people
that are residing there don’t take as good of care as a homeowner would,
– Right. investing in their community. But yeah, it’s
happening everywhere. It’s pretty rampant. – And so that was what? I think the number was
25% of the sales last year were to non-owner-occupant,
– Yes. and that includes again, Bartlett and Cordova,
– Right. and Collierville
and high-end homes, which was not something
I think we saw, Germantown.
– Right. So, your time in real
estate, I mean that’s a new phenomenon, the rise of these investors,
– It really is. Right? – It really is. In past recessions,
what we would see is builders that could not sell
their houses, would rent them. Then you would have recovery, prices would come back
and then they’d sell them. What we’ve seen in this
extended downturn is that we’ve become a
target for the world, because we do have people
that can get in those, but they really can’t
afford a permanent mortgage or they don’t qualify because
their credit’s not good. It’s become, my friends in
the multi-family market, call it shadow rental inventory.
– Yeah. They’re not competing,
necessarily, against big apartment
complex competitors that they’re used to. They’re really competing with
a hedge fund or an investor from California.
– Right. So, it’s everywhere.
– Yeah, yeah. I remember, I think
you were on the show, from when we were talking
about this earlier, three or four years ago. You were beginning to see this in Frayser,
– Mm hmm. and there is this kind of, there’s a notion among a lot
of people that rental homes drive down property values. They drive, they hurt markets,
– Mm hmm. they’re not tended to. I remember you saying,
you know cross my fingers, maybe it was at some
event that we were at, that they’re doing
a really good job. They’re actually
building up these homes. They’re improving these homes. Again, this was four
or five years ago. Is that still your take,
that these are actually positive investments in
the Frayser community? – It can be. I could show you a couple of
houses on Frayser Boulevard that were simply
abandoned for ten years, and one of the investors
who I happen to respect, picked ’em up,
– Yeah. totally fixed them and
put families in there. We don’t have the capacity to
fix all of the empty houses in Frayser, as a result of
the foreclosure epidemic. On the other hand,
neighborhoods go through phases, so now’s the time
for the next phase, and that next phase is
to help working families get into those
houses affordably. You may know this. Few would know that sale
prices have gone up 35% in the last year in Frayser, so there’s a steep
escalation going on for the last five
months running. That’s not common knowledge yet, and it’s really not
common knowledge that now that lenders will
lend in this neighborhood, so this is the time. Another one of our slogans is
if you make ten bucks an hour, you can buy a house in Frayser. It’s very remarkable.
– Right, what is the lending market like, because
the perception, and you hear this
I think a lot too, from realtors and people in
the real estate community, is it’s impossible
to get a loan. Post crisis, the standards
and the paperwork and the credit score, all
that, it’s impossible, it’s impossible, impossible. That’s not the case?
– It’s easy. In fact, one of the
things that we’re doing is providing people with
information about the banks that we think are friendly to
the low cost neighborhoods, and they’re loaning at 580
credit scores instead of 640, and et cetera. They’re waiving the
mortgage insurance and you know, just programs
that are a little more flexible for low income. Credit is still an issue,
– Right. make no mistake about it. Credit is still an
issue, but it is easing and the banks,
really I think thanks in part to the regulators,
are much more avid to loan in the marginal neighborhoods
than they were a year ago. Things have really changed. Realtors don’t even
necessarily know that yet, but it has changed.
– Right. Your take, on the
lending environment and what the
realtors say to you, in terms of a couple things. The standards, we hear that all the time,
– Right. that the standards are too
high, you can’t get a loan. Now, interest rates are also going up.
– Right. You’ve still go much higher
standards than pre-2009, some people would say, “Thankfully,” but–
– Sure. What do the realtors say to you? – I think for areas like
Frayser, that have lower income, they still think,
they still me there’s no one lending there,
– Right. and then I mention
that to Steven and
he’ll say, “There are. “I have five lenders right here
– Right. that are lending
to people here.” – And then, move to
Midtown, Collierville. Is that an impediment or now,
– Yeah. just the realtors saying no? As soon as we can get
on this new market– – I don’t hear that complaint in other areas
– Yeah. that have had sales
volumes and prices. – And we talk about a range, from Frayser to
Collierville to Midtown, and the breakdown of
home sale prices by most of the home
sales were what? 100,000 dollars average
or something like that? 40% of them were 100,000? – 42% were under 100,000, and during the
recession it was 50. 55% were those lower valued
homes where the properties foreclosed and the banks sold
them off at the lower prices, but on average I think we were
up to almost 160,000 dollars across the county, last
year, for home sale prices. – Right, so again, we talked a little
bit about building. We talked about the
under-availability of lots and we’ll look at a
graphic that shows the lot prices and
the volume of homes. You see on the blue bar there
is the number of lot sales, which back in 2006
as you reference, was through the roof (panel
laughs), and then it came down, and now it’s a much,
much smaller number. That red line shows
the price of those lots are just skyrocketing. We talked about a little bit,
but let’s dig down on it. What is driving that
incredible spike in cost? It’s not just a Memphis phenomenon,
– Right. it’s a national phenomenon that people have been
talking about for years. – Right, well the development
model is really pretty simple. You only have certain things. You have your processing through the municipality
to get your entitlements. You have your land cost, you
have your development cost and then a profit potential. Really, development costs
have all continued to go up, even though we’ve
not seen any rise in incomes or sales
prices until recently, the costs have
continued to escalate. – What cost? Is it regulatory costs or? – All of them. Anything that involves oil has been up,
– Okay. so shingles. Lumber has started to go up.
– Supplies and stuff. So many people in the downturn
stopped producing stuff. Bricks. So, as demand has come back up, they don’t have the
employees and labor force to produce them. – I think you and I were talking about that,
– Right. that there is this
whole big group of carpenters, brick layers,
– Sure. plumbers, that just went away
– Sure. in the Great Recession,
and it’s not like they were sitting
on the sidelines and now they’re coming back in
– Right. that the economy is better. – Well I think because of
the length of the depression, (laughs) we’ve lost, I mean
home builders for example. The Home Builders Association
has lost half its membership and we’re not seeing
that come back because those people went and
got jobs at tire factories or other places that
are not as impacted by the downturn.
– Right, right. So, now that they’ve been there
for four, five, six years, why come back into something that could,
– That’s so … that’s so volatile? That’s what we’re
seeing, and then with the immigration reform stuff
that’s in the news now, a good amount of the labor is immigrant labor,
– Yeah. so that’s part of
the discussion. It’s just a very
complicated issue. – Is there just literal fear
among the immigrant population, in terms of what they,
or how does that play out from a cold hearted,
– Right. getting work done point of view? – Right, no, I don’t see that
– Okay. in my work. It’s just a function
of getting people back into these markets. If you’ve been this
high and then down here for such a long period of time, people just didn’t capitalize for five, six, seven,
eight years of no work. ‘Cuz we didn’t slow
down in Memphis, we stopped.
– Right. It wasn’t the normal boom,
recession, boom, recession. It was boom, bust. – In terms of, is that
part of what drives people, I don’t know who I’ll
ask the question, I’ll start with you.
– Sure. The rise in multi-family,
– Sure. okay, so you see all these,
in Memphis it plays out very heavily downtown now.
– Sure. There’s a couple dynamics there. One, people wanting to be back in the urban core,
– Right. they want to be
closer to amenities, they wanna drive
shorter distances. Some of it was the Great Recession,
– Right. that people couldn’t
get loans or didn’t feel secure enough
– Right. to get a loan, didn’t feel
secure enough in their job. With that lot sales being
up, does that just continue to drive multi-family? Are there just more and more
apartments gonna be built, or is that a phase
that will slow down? – I think, from my
perspective, we will see that start to ease. Going back to the mortgage
issue and the ease, I think there’s money available and I think we’re seeing credit
standards ease a little bit. The process has changed with
the new banking regulations. I think it’s more of
the overwhelming factor of what was meant to be transparency in the lending
process, so we got rid of these predatory lenders,
– Right. is now an overwhelming
avalanche of paperwork and disclosures
that people, quite frankly, just don’t understand
what all this is, and it’s scary. – And all of this,
it comes out of Dodd-Frank,
– Correct. which people hear
about in the news, is Wall Street stock broker
reform and bond trader reform and all that, but
then it plays out as the Consumer Financial
Protection Bureau, we get into all these. They regulate the
realtors and they regulate the mortgage brokers,
– And the appraisers. and the appraisers. So in a place like Frayser, there was some really
predatory stuff that went on.
– Absolutely. It went on everywhere,
– Sure. but it was very
concentrated in those areas. People have said this
regulation, it was necessary because it had gotten too
loose and too wild west, and a lot of people got
hurt, and we saw the impact on the whole economy.
– Right. Has it gone, did it go
too far, do you think? I’ll ask you, Steve. – I don’t think it went too far, but I think there are always
unintended consequences. I had a call this week from
a guy who put 50,000 dollars in a house and got a
23,000 dollar appraisal, and he was crying on the phone. I get it, but I think you put
these regulations in place. We need it. It is harder to restore value when neighborhoods
get knocked down, than it is to knock ’em down. I don’t think it went too far. In fact, really it’s about transparency
and truth in lending and truth in process,
and I think it was right. – Yeah, yeah. Do you hear people on the
regulation and the realty, when we work–
– When it first happened yes, that’s all you heard about.
– Yeah. Now, I really think
it’s loosened as far as what they can offer,
– right. and I think everyone’s
kind of got it down as far as what they need to do
– Right. to get loans closed. I’m not hearing trouble
out in the field when I’m talking to
realtors about them getting loans approved,
– Right, right. or appraisal values
or anything like that. – And certainly there’s
a lot of speculation now with the new administration,
that those regulations will, if not be wiped out, they
certainly will be interpreted much more loosely. A lot of this came out
of the foreclosure. Let’s talk about foreclosures for a second, Wendy.
– Mm hmm. People remember the
foreclosure crisis. I mean, it was astronomical. I remember us writing
about it in the paper when the economy was still good, when houses were built, but those trends of where
the foreclosures were were rising and rising. I remember the builders
would get so mad at us because we were writing
about, you know, “Why are you writing
all the bad news?” And we’d say, “Well, ‘cuz these
foreclosures are happening. “We’re just reporting “what’s happening.”
– Right. I think we have a chart that
shows the trends on this were, what was it? 6,000 foreclosures at the peak, you know, 2008 or so. We’re down under 2,000, give or take 2,000 last year. – [Wendy] We didn’t even
hit 2,000 last year, right. – [Eric] We didn’t even
hit 2,000 last year, in Shelby County.
– Mm hmm. Your sense of why? Just because the economy
is better, because what? – Well the economy is better and then there are major banks
that had a moratorium here, in Memphis and nationally, that couldn’t foreclose
– Right. on properties, so we’ve
seen them starting to pick up a little, but
not back to the volume that they had. You and I had spoken
about delinquency rates. They’re down. You know they were up a little
bit in the fourth quarter of last year,
– Right. but overall they’re down
from where they were during the boom. I just don’t think
it’s as easy for them. A lot of loans
have been modified. Steve works with people
getting their loans modified all the time, and I think they’re in a
better financial position, then it’s just not happening. – Right. Do you see, anyone see
that changing though? We have a new administration, a lot of this stuff is
regulated by, as I said, the Consumer Financial
Protection Bureau, Freddie and Frannie. There’s a sense that
people were saying there was too much regulation,
so we’re gonna loosen that. Do we just repeat the
same mistakes of the past? Is that what happens? – I don’t sense that. I think too many people got hurt in this particular downturn. I don’t disagree that the
pendulum swung and it needed to, because it had
gotten so loose that if you could fog a mirror, you could get a mortgage.
– Right. People that couldn’t
get past the credit test for an apartment
were buying houses. Something’s wrong there, and so I think we’ve
eliminated that. I think it’s just the wow factor
of all the disclosure now, that sort of freaks people out
– Right. I simply don’t understand
what all this paper that’s being thrown at
me, which is a good thing because it’s actually disclosing what you’re paying
– Right. and all these different
things, and sort of covering everybody’s hind parts
– Right. with the process. It’s just overwhelming
to someone that’s not, you don’t take a mortgage out every day.
– Yeah. It’s something you do
several times in a lifetime and it’s different every time, so I think that’s what’s
impacting people more, is that they’re sort of
overwhelmed with the process. I think as the mortgage lenders, as the real estate agents
adapt to these new standards, they’ll be able to
explain it better, where it’s not so overwhelming. – Right, your thought
on the foreclosures. Do you see a repeat, do
you see predatory lending starting again? Do you see any loosening? It’s just ‘cuz there’s
always a cycle. I mean there’s always a
cycle in construction, there’s a cycle in
real estate values, there’s a cycle in foreclosures, and so we’re at
this kind of trough, that some people
are saying look, inevitably it’s gonna go
back up one way or another. – Somebody brought me an
adjustable rate mortgage within the last few weeks
and I laughed at him. Of course, I mean they came
back with a fixed rate loan. I don’t think foreclosures, I mean I think there’s
some advantages now. Among other things, I think
it took the banks quite awhile to figure out it was in their
interest to modify loans, rather than to let ’em go bad.
– Yeah. And because they simply lost
their shirts doing that, my counselors, in
terms of foreclosure, have a must different path
working with banks now than they did six years ago. I don’t think
that’s gonna change. Of course, we’ve run
the cycle of these adjustable rate mortgages,
an awful lot of them. Some of them are still out
there, but we’ve run the cycle and we’re not feeding
new ones into the system. So I don’t think that’s
gonna be the problem. – Let’s shift a little bit
to some of the big ticket, the big projects. We were talking before about Crosstown.
– Sure. We’ve written about it a lot. Everybody’s written
about it a lot, we’ve talked about
it a lot on the show. How does that impact, you know when Crosstown,
Crosstown is beginning to open bit by bit.
– Right. How does that impact
neighborhoods? How does that impact
development around there? Your thoughts? – Yeah sure, I think anytime
you have a monumental structure like that, that’s
been sort of a blight, because it’s been inactive. I was able to tour it yesterday
for the very first time. I’ve been here 30 years. It’s the first time I’ve ever
stepped foot in the building, but I was blown away
with the synergy and the energy that’s there.
– Right. When you have an overwhelming
positive in your neighborhood, it tends to lift
everything around it. You know, with the
church health center being the main tenent, which
is just an overwhelming good for our community, and
right in this issue that we’re all dealing
with healthcare, and that whole discussion. I think it’s positive, but
then you combine that with the Memphis Teacher Residency, Tech 901,
– Right. all of those other
companies that are starting to go in there. Combine that with housing. When you put quality
people in the neighborhood that want to do well, I think
it just lifts everybody. – Right. In Bayington, I mean
we’ve talked about it on the show before, there’s a grocery store going in.
– Saw it this morning. You can’t, I mean I
think you probably can’t emphasize enough the importance. We go from the 200 and something
million dollar Crosstown which has this huge,
wonderful impact, but that, I don’t know, couple million
dollar grocery store, could potentially transform
that whole area, right? – You know, the real central
issue on this is that we were recently declared
the most sprawled city in the country. I think of all of the negative
things that we’ve heard about education,
poverty and et cetera, that might be the most damning. All of these really
impressive efforts, and the Strickland
administration is right. There’s a lot of new,
really interesting building of all manners going on
here, and it’s all good and it begets and
brings in others, so the Sears Crosstown
will really make that whole neighborhood blossom, I think all the way up to Frayser.
– Yeah. I think that that grocery
store will help bring more rooftops, and
all of that is good, almost all infill development. I wanna go back
to the land issue. Gary said that people only
wanna build where there are credible schools
and crime is okay, and he’s right about that. We have incredible amounts of
land but it’s incumbent on us to, that’s why the
discussions of the schools are so important to
the work that we do. There are some really good
investments going into schools in Frayser these days. I know it takes awhile
for that to take hold, but that’s extremely important
because we’ve got land to develop there, and we
wanna attract people there but it’s difficult
at this juncture. There’s no question about it. – Right, do you, just
a couple minutes left. Do you, Wendy, do you hear,
I mean we write about it, we talk about it in
the paper all the time, talk about it on the
show all the time, the realtors talking
about, things like whether it’s Service
Master going downtown or it’s the Pinch District
and Saint Jude putting a gazillion dollars, give
or take, (panel laughs) into downtown, or the
Green Line and Shelby Farms and all that. Do realtors follow that, or is it more the
schools and crime? – I think they, I mean I
hope they follow everything. Schools and crime are important
to their clients, obviously, but I think they’re in tune
with where jobs are coming into, what markets are hot,
what’s up and coming and where they wanna be
focused on as far as sales. – Yeah, and let’s talk
with just this minute left. We’re gonna do a full
show on the reappraisal but I think, as of the
airing of the show, all of the reappraisals, the tax reappraisals
for Shelby County, which impacts everybody,
– Yeah. all the notices are out.
– Yes. The overall residential is
gonna be up, give or take what? – Roughly 10%. – Okay and then commercial
values up even more. – Way more.
– Yeah. I’ve heard 40, 50% and upwards. – Okay, and so that’s
our first reappraisal and I always screw this up. That’s the first reappraisal in four years, right?
– Right. And this is where I need Bill. I love that you’re
here, but I need Bill to always explain this
for me politically. There’s a huge impact
that this reappraisal could potentially have, right?
– Sure. I mean, you’re not in your head, this is the first one in
eight years that’s gonna show really substantial increases. How does that,
real quickly here, how does that potentially
impact what you all do? – Yeah, so residentially
it obviously impacts people’s perception
of different areas and that sort of thing, and
why they choose an area. – That it’s a valuable,
it’s an increase and yeah. – Correct, yeah, it’s growing. From a business side, which
the other half of my company owns office and
commercial properties. It’s a huge factor to their net operating income,
– Yeah. so as those go way up,
it affects their ability and then that affects
rents to all of the tenants and the profitability of those
people in those buildings. – Alright, well again,
we’re gonna do a full show where David will hopefully
have the assessor on and talk about it, because
I think it’s, I mean people know their own values, but it’s gonna have a huge
impact on the community. Thank you all for being here. Thank you or joining us. Join us again next week. Good night. (Behind The Headlines
Theme Song)

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