Mortgage originations jumped to over 30,000 in2012 (the latest year with data) and when 2013 numbers are released, they are expected to show another year with over 30,000. That is almost 8,000 more originations than 2011 and the first time the city has gone over 30,000 originations since pre-2007. This activity in the Memphis market is a very good sign as the cities normal real estate cycles begin to shift back into focus.
Many market watchers are predicting a strong buying season in 2014. According to a recent article in the Memphis Business Journal, the up-tick in interest seen coming over the next few quarters can actually be a very good thing for a real estate market. The main driver over the past 12-24 months has been refinancing of existing loans into lower rates. This is a very good thing for individual home owners and for household finances. But the real driver of a market are home sales.
Will Real Estate Sales Increase With Higher Rates
As interest rates go up, and many who were interviewed for the MBJ article felt that rates would be above 5% in 2014, the values of properties go up as well. There is a natural balance that occurs as rates are still low enough to make home buying affordable and sellers are feeling better about their home values as more and more properties sell and prices go up. Memphis has seen a steady price appreciation throughout 2013 and that is a trend expected to go into next year.
As fewer people are refinancing their properties and choosing to list and sell, the cycle of selling and buying and borrowing continues and has the opportunity to pick up steam. This cycle is what many real estate trend observers are waiting for to call the housing crisis over in certain markets. Sales have to increase and refinances have to decrease. One sure fire way for that to happen is for rates to rise slowly and methodically. That helps to keep the shock of higher rates from chasing off new buyers.
Affordable Real Estate Markets Like Memphis
One more piece of the puzzle to keep our eye on in a highly affordable market like Memphis. Home buyers do not enter and exit markets based on interest rates. They enter and exit the market based on their income, earnings and general well-being. So when it is time for a home buyer to purchase a property, rising interest rates are not expected to keep them from purchasing. The higher interest rates are however expected to push some borrowers down a notch in terms of size and price of home. As the rates go up, buyers are expected to follow historical trends and opt for buyer smaller, possibly older renovated properties that are more affordable with a higher rate.
If I am not mistaken, with Memphis new home construction continuing to lag well behind normal levels of new starts, the homes that many real estate investors have been purchasing could be the prime targets for new buyers in the next few years.
I would love to hear what you think. Please feel free to share your thoughts in the comments!