I know it sounds a bit crazy, but when talking about Memphis real estate and the role that foreclosures have on the market, there are some words that just don't seem to go together. Take for instance using ‘Stable’ and ‘Foreclosure’ in the same line... or sentence for that matter. It sounds a bit oxymoronic, right? I am fairly sure, although not entirely positive, that is a word!
As awkward or surreal as the two may sound together, it is a direct representation of the Memphis housing market right now and happens to be the title of a recent news article. Andy Meek, from the Memphis Daily News, wrote an article recently titled Stable Foreclosures reporting that the number of foreclosures in the Memphis area increased 5% from 2011 to 2012, which means plenty of inventory for real estate investors looking to invest in the Memphis area. What is ironic about the news is that the "stability" comes from the fact that foreclosures didn't rise 15% or 25%. Finally a year over year where the increase is dropping. Couple that with the news that pre-foreclosure notices are also dropping and Memphis could finally be heading toward what economists would mark as the beginning of a housing recovery. Of course, that may be premature.
Meek also noted that from 2011 to 2012, residential foreclosures climbed from 3,992 in 2011 to 4,201 in 2012, and is likely to take on increased significance in 2013. Why? And more importantly, why should real estate investors care that 2013 may be a significant year for Shelby County? 2013 is scheduled to be a re-appraisal year when the County Assessor resets the values of property and they have already signaled that just because there are foreclosures, does not mean your property value is going down. The County needs the tax revenue and I can already imagine there are going to be a lot of fights, followed by a possible new round of foreclosures.
For sales appraisers, those that are brought in by lenders and banks to establish a value of a property for sale, foreclosures complicate the appraisal process somewhat. Foreclosures do not simply effect the subject house or the property next door. Appraisers often go out close to a mile from the property they are appraising to get a value so a foreclosure can have a much more profound effect on its surrounding area. For investors though, the higher number of foreclosures mean paying less per square foot and maximizing their investment return when the property is being bought out of foreclosure.
The fact that the County Assessor is hesitant to include the foreclosure problem in their value assessments brings up a real problem for many home owners and real estate investors. The County wants the values high for tax purposes. The investors want the values high for borrowing purposes. The lenders want the values low for lending purposes. The investor wants the value low after purchase for tax purposes. If you stayed with that circle of logic, then welcome to the confusing new reality for many cities and counties around the country trying to figure out how to deal with a foreclosure problem that is very persistent, while also dealing with revenue problems for funding programs. Including programs meant to limit foreclosures!
It is going to be a bit of a winding road and while it lays out before us, Memphis Invest will simply continue to search for great opportunities and manage those opportunities for investors.