Homebuyers fork over money as sales prices climb in Memphis' tight real estate market

Drive through some Greater Memphis subdivisions and blocks lined with hundreds of homes might have only a handful of “for sale” signs posted in the front yards.

Know what that means?

Money.

House hunters bidding for scarce properties going up for sale amid the pandemic have offered thousands of dollars over asking prices.

"It’s not unlikely to get eight to 10 showings on the same day as soon as you put the house on the market,” said Loura Edmondson, a Memphis real estate agent. “Some buyers are paying $20,000 over the list price.”

Prices are surging in Memphis

Greater Memphis' price escalation is happening because 60,000 new jobs emerged between 2012 and 2020, but builders put up far fewer houses.

Even after the coronavirus pandemic set in and layoffs surged this spring, many people living in apartments and houses still had jobs and angled for bigger homes or new areas to live in.

Once shelter-at-home orders eased in June, houses began to go up for sale, but the number of homes listed remains far below the demand, real estate agents say.

"There’s just so little inventory on the market,” said Katie Shotts, chief executive of the Memphis Area Association of Realtors. “The under-$400,000 houses are flying off the shelf and getting multiple offers.”

The scarcity helped lift July’s average sales price to $222,114 in the region tracked by the association. That compares with $207,412 on average in July last year and $197,211 in July the year before, the association's reports show. It means values rose 12.6% on average over two years.

The trend has continued this month. May and June typically rank best for home sales. Because the virus disrupted the spring market, July and August are surpassing the spring.

“August is starting out very strong for me,” said Edmondson, an agent in the Crye-Leike Realtors office on South Perkins Road. “We are seeing sales are up a good percentage, and what sellers have been getting on their homes has been astronomical.”

August data isn't available yet, although 1,982 houses changed hands in July in the association's region, compared with 1,945 home sales in July a year ago (a 1.9% gain) and 1,857 in July the year before. The association tracks house sales in Tennessee's Fayette, Tipton and Shelby counties including Memphis but no Arkansas or Mississippi suburbs. 

Sales trends appear stronger across the state line from Memphis in DeSoto County, where the Northwest Mississippi Association of Realtors reports 416 houses were sold in June, almost 10% more than a year earlier. Houses sold for $232,387 on average, up 6.7% in one year and 22% over the $191,000 average two years ago in June, the Northwest Mississippi group says.

Buying a house in the virus era

In the age of the virus, the market has shifted. More perusing takes place online. Open houses are rare.

Once a common way to show off a house going on the market, open houses let visitors step into a home and question the real estate agent. Now the showings factor in less than one in 10 sales for many agents.

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Instead, agents post video or multiple photos of a home’s interior online for prospective buyers to view on their smartphones and computers. Instead of face-to-face meetings, agents often take questions on Zoom or other online chat services.

When a seller does favor a traditional open house, they are advised to turn on every light in the house, open blinds and curtains for light and open every door and cabinet to minimize surface touches by visitors. Face masks and hand sanitizer are often given to visitors to help ward off transmission of the coronavirus between people.

Market rises despite the jobless rate

Despite the virus, and an 11.9% June jobless rate in metropolitan Memphis, nearly 547,000 people remain employed. Hundreds are house shopping, especially apartment renters.

“A lot of the demand is coming from first-time homebuyers and buyers who want to move up or get more space simply because interest rates are low,” Edmondson said. “They see this is a prime time to get the best thing for their investment.’’

Interest rates have fallen because the U.S. economy reeled after shelter-in-place orders sent the unemployment rate soaring. As the economy slowed, loan demand cooled. In a bid to refire the economy, the Federal Reserve, a U.S. government agency, expanded the money supply by over $2 trillion. Interest rates eased in turn.

A week ago, the interest rate on home loans to be repaid over 30 years reached 2.88%. That was the lowest 30-year mortgage rate recorded by lender Freddie Mac since the company was chartered by the U.S. Congress in 1970 as the Federal Home Loan Mortgage Corp.

"We expect rates to stay low and continue to propel the purchase market forward," said Sam Khater, Freddie Mac's chief economist.

Low rates have spurred a home sales boom in many parts of the nation. In June, the latest month for the data, U.S. home sales in total rose 13.8% over the same month last year, led by a 90% surge in Northeastern cities.

“The highest new home sales pace in thirteen years shows that at least one segment of the (U.S.) economy is back up and running,” Philadelphia-area economist Joel Naroff said in a report to clients, noting a 5.6% average rise in home prices in a year.

Memphis trails the US housing surge

Greater Memphis saw home prices rise, but total sales remain constrained, rising about 2% in the last year, according to the data compiled by the real estate associations in Memphis and DeSoto County. Why does the region trail the nation?

Experts single out the homebuilding market. Relatively few new houses have gone up over the last decade. Without some place to step up to, many homeowners stayed put. Some have refinanced their mortgages at the low rates and renovated their existing property.

“Part of it is they’re unsure they can find another house to buy,’’ Shotts said. “And part of it is there’s not enough new product to buy. We’ve struggled with putting new homes on the ground.’’

In January and February, builders were active in about 350 subdivisions in metropolitan Memphis. That’s a low amount, said Collierville builder Dave Moore, area vice president of the Home Builders Association of Tennessee, compared with the activity visible in about 1,000 subdivisions in the metro area just before the 2008 U.S. economic crash.

Back then the collapse was triggered by federal deregulation and speculation by Wall Street banks. Dozens of Memphis-area builders were wiped out. After the crash, few began building again. Many were out of money or deterred by Memphis’ slow economic growth in the early 2010s and relatively low wages paid workers once new jobs emerged.

Rising construction and land costs priced builders out of the market for $200,000 starter homes affordable for average families. Apartment construction boomed here. Many people rented.

DeSoto County market stands out

Where home construction has remained stronger is in the Mississippi suburbs, long a draw for middle-class families coming out of Memphis proper.

DeSoto County's planning department reports about 7,000 building permits for single-family houses have been filed since 2014, including 202 in July, up from 137 filed a year earlier. DeSoto ranks third among Mississippi counties in population and is home to an estimated 185,000 people, a gain of about 25,000 since the building surge began.

With the new construction underway, real estate experts figure DeSoto's population growth and the market for existing homes sales are likely to continue strong, particularly in the era of low interest rates.