Appreciation is Returning to The Real Estate Market in Atlanta

As a veteran real estate agent in the Atlanta Market for over 30 years (Yes, I started in real estate when I was 12), the current market is the darnedest thing I have ever seen. First and foremost, listing inventory is down by 36% from May 2011, sending home values up 2.35% from March 2012 for the first time, and, above the national average of 1.3% according to the Case-Shiller Report of June 2012. These new numbers indicate a firming of the market in a positive direction.  Is this a signal that the metro Atlanta real estate market will continue to show signs of improvement for sellers? With an extended period of low inventory since last year, Buyer activity is strong. In 2012, Trendgraphix reports closed sales up 15% compared to 2011. At the same time, the pace of pre-foreclosures (notices of default) and foreclosures has slowed. For the past three months, RealValuator reports that market sales (resales, new homes) have outpaced bank-owned sales.

Recently, mortgage rates have dipped back to historic lows. The Fed has extended “Operation Twist” which is a program intended to keep 30-year rates low. But, mortgage rates are impacted by more factors than just interest rates. There are major legislative issues and other economic factors that could cause mortgage rates to rise. For example, the proposed legislation for QRM (Qualified Residential Mortgages) will require mortgage companies to hold back 5% in capital reserves for every loan. That is expected to be funded by higher mortgage rates. Right now, there is an incredible window of opportunity to buy the home of your dreams and set a future mortgage rate that we will not likely see again in our lifetimes.

I believe that we have reached the bottom of the housing market in Atlanta and future demand for housing is going to be very strong. I expect annual home values slowly increase over time with a few bumps along the way.  The real estate market in Atlanta tends to be the last into a problem market, and, the first out of a problem market.  Regardless, of what happens in the other sections of the US, Atlanta still has the busiest airport in the world, has an average of 90,000 people per year moving here that must live somewhere,  has incredibly low utility costs, and, gives great tax incentives for businesses, manufacturing and movies to be made here.  What more can you ask for?

Prior to the real estate recession, Case-Shiller reports an average annual appreciation of 4%. In 2013 or 2014, they expect to see a seller’s market return with higher than normal appreciation for a few years. In fact, we are already seeing that in some of our local markets like Buckhead, Sandy Springs, Vinings, Dunwoody, close in East Cobb, Roswell and Milton. If you look at the average annual Case-Shiller index for each year, here is how homes purchased in recent years would compare to the current index:

Homes Bought in 2000 – Loss of 18.15%
Homes Bought in 2001 – Loss of 22.49%
Homes Bought in 2002 – Loss of 25.36%
Homes Bought in 2003 – Loss of 27.71%
Homes Bought in 2004 – Loss of 30.17%
Homes Bought in 2005 – Loss of 33.52%
Homes Bought in 2006 – Loss of 36.56%
Homes Bought in 2007 – Loss of 36.97%
Homes Bought in 2008 – Loss of 31.10%
Homes Bought in 2009 – Loss of 22.05%
Homes Bought in 2010 – Loss of 20.11%
Homes Bought in 2011 – Loss of 14.09%

Yes, Atlanta is slowly climbing our way out of this unprecedented housing crisis – but we are not there yet. So where will home values go from here? The key factors that will impact our home values include the following:

Demand From Buyers: Atlanta finished 2011 with over 70,000 homes purchased – a 20% increase from 2010. The activity is very strong so far in 2012 with closings up 15% from 2011.

Mortgage Rates / Credit Availability: Average mortgage rates in the past 50 years were 8%. I expect to see historically low mortgage rates this fall and expect to see rates start rising during the 2nd half of 2012 and into 2013. Freddie Mac unfortunately predicts mortgage rates of over 5% next year. In 3-5 years rates will probably increase to the 6-8% range.

Supply / Inventory Levels: Most of the Atlanta markets are showing inventory levels down 25% – 30% from the prior year levels. We expect inventory to remain at very low levels as we begin to move into this seller’s market.

Competition from Short Sales / Foreclosures: In 2011, short sales and foreclosures were over 60% of the transactions sold. In 2012, this activity is down 50% from last year. For the last three months, I am now seeing resales and new homes outpace the sales of bank-owned properties.  I expect to see more shadow inventory coming in late 2012 and early 2013. However, most of this will be concentrated in specific areas.

What does this mean for Investors?  You should be carefully watching the trends for short sales and foreclosures. Prices are still low, but are rising (prices are already rising more in many markets of North Atlanta). Yes, we will continue to see some ups and downs along the way. The quantity of distressed properties is still quite high and can afford opportunity for those looking to acquire great deals for rental or flipping. In a few years, short sales and foreclosures will return to normal levels. The new homes inventory is low and will remain low due to inability to get financing. That means we will see an undersupply of homes for sale and values will begin to rise. In 5 or 10 years, many will look back and regret not buying their dream home when they had the chance

Low-ball offers on high-value properties may result in missing out on a great opportunity due to the competitive bidding of offers being $5000 to $20,000 above List Price.   Although cap rates on most rentals are above 10% for properties under $200,000, cap rates are declining with the competitive nature of multiple offers causing prices to increase. As a matter of fact, over 17% of sales are over list price last quarter and that number is rising.  Quick action and serious offers are required when high-value properties are found, since low number of days on market and a high Sales Price to List Price ratios are the result with multiple offer situations.

In summary, cheap properties, low interest rates, and high cap rates make this the most opportune time in our history to be buying real estate. Don’t miss out on the greatest time to be building great wealth in Real Estate.

(This statistical market data and charts are provided exclusively to Keller William Realty-Rawls Group by Chuck Carr of Chartmaster Services, LLC. which cannot and does not warrant the accuracy or completeness of the data. The source of all data contained herein is FMLS listings data for real estate transactions occurring in 41 FMLS areas including Fulton, Dekalb, Cobb, Gwinnett, Forsyth, Cherokee Douglas, and Paulding counties, and does not necessarily represent all market activity either for those areas or for the Atlanta Metro area).