Memphis a magnet for real estate investors
I got to know the city of Memphis, Tenn., fairly well over the few weeks I spent there doing research for my novel, "The Death of Johnny Ace."
The life of my fictional protagonist was based on a real person, R&B singer Johnny Ace, who died tragically just as his career began to peak in 1954. At the time of my story, Memphis was famous for, and would continue to be for another decade, its music scene. Don't forget, Elvis Presley first recorded here, and Graceland is still a big tourist attraction.
Memphis is no longer famous for it music, unless in an historical or nostalgic sense. You can still visit Beale Street, but Sun Studio and Stax Records are now only museums. Instead, Memphis, more prosaically, is known as a distribution center, and Federal Express is the main attraction.
With its five rail lines, port on the Mississippi River and central location, finished goods are shipped into Memphis to be distributed to retail locations across America -- or, in the case of Federal Express, around the world.
The good news is, distribution is the largest private industry in Memphis and continues to expand; the bad news is, the huge warehouses employ relatively small numbers of workers, and salaries are moderate.
That latter is one of the contributing factors to Memphis' other claim to economic renown: It's a low-cost-of-living city. The price of home in Memphis is easily affordable; in 2012, the median price hit $88,000, and even using average sales price, it was still just $128,740.
Single-family residence investors like to buy rental housing in Memphis because the numbers work so well.
"We have investors from all over the country that come here and buy property. We are one of the most affordable cities in the country to live in," said Carol Lott, president of the Memphis Area Association of Realtors and a broker at Prudential Collins-Maury Realtors.
The question is why? And for that answer I called John Gnuschke, director of the Sparks Bureau of Business and Economic Research at the University of Memphis.
First of all, Gnuschke said, somewhat defensively, Memphis sits in the center of the country, but is considered a Southern city, and compared to other Southern cities, Memphis housing is not all that low. On the other side of the ledger, Memphis housing looks crazy-cheap as compared to Northern, Eastern and Western cities.
On a nitty-gritty level, Gnuschke added, Memphis has a high poverty population, and the relatively inexpensive housing eases the pressure on low-income families. "Since housing costs are low, high-quality housing is available to even the low-income families," he said.
Memphis also has some expensive locations, mostly in the suburbs of Germantown and Collierville, which, by the way, are two locations that held their own during the Great Recession, Lott said. Also doing well are the fast-growing suburbs of Arlington and Lakeland.
"Memphis-area building permits through October were up 86 percent over same months in 2011," Lott said. "We are starting to see more construction in the suburbs."
When considering Memphis, everything regarding housing is relative. Through October, year-to-date new-home sales for the Memphis area totaled just 582 homes, just slightly better than the 549 homes sold January to October in 2011.
Those are not strong numbers for a metro area with more than 1 million in population.
Back when Johnny Ace, B.B. King, Ike Turner and Rufus Thomas roamed Beale Street and Elvis Presley was entering a studio for the first time to record a song for his girlfriend, musicians flowed into Memphis from all over the South, especially from the Mississippi Delta.
Distribution centers don't attract that kind of population movement. The city, Gnuschke said, is a slow-but-steady-growth town. That's also a good news/bad news situation: The population ticks up, but employment doesn't.
"The recession here came after the jobless recovery of the George Bush years," Gnuschke explained. "After 2000, we didn't see job growth until about mid-decade and then came the recession. We fell off the charts after that. We are still 40,000 jobs under peak."
The city boasts a major university and a growing healthcare industry, but a high percentage of the employment falls to local and state government, which, like everywhere else, has been cutting back. Today, the unemployment rate is trending just above the national level.
Being a slow-growth city, Memphis was able to sidestep the worst of the Great Recession. Housing didn't really boom during the decade before 2008, and the city didn't experience much of a bust either (and that bust came later).
"The bottom of the market was probably in the fourth quarter of 2011," Lott said. "It was rough here, but not as bad as elsewhere."
Gnuschke added, "Memphis doesn't have big housing cycles. Developers recognize the idiosyncrasies of the market and don't overbuild."
2012 was a comeback year of sorts. According to the Memphis Area Association of Realtors, total sales reached 12,716 homes, up a strong 17.1 percent from the year before. Sales of existing homes rose 17.7 percent.
"We look at 21 different individual markets in the Memphis metro," Lott said, "and in 19 of the 21, home sales increased."
Lott estimated about 7,000 homes are on the market, which, she said, is low for Memphis, and "we are seeing multiple offers on properties resulting in increases in price." Average sales prices edged up through October 2012 by 1.7 percent over the same period the year before (median sales was up 1.1 percent for the same period)."
As noted, the average sales price reached $128,740, which is still below the height of the market when the average sales price was above $140,000.
From an outsider's point of view, it looked like foreclosures were a problem in Memphis, with bank sales in 2012 increasing by 8.3 percent over 2011. Memphis being Memphis meant this wasn't a problem. As Lott noted, "Keep in mind, Memphis always has foreclosures."
Back in 1954, Johnny Ace recorded a song called, "No Money," and the first lyrics read, "Got no money, baby, no place to call my own."
And that was Memphis when times were grand.
Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "The Death of Johnny Ace," is now available for sale on Amazon.
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