I Am Not A Pessimist - I Am A Realist
Back in 2005, I warned many of my colleagues about the faulty fundamentals in the Atlanta real estate market - particularly in the residential sector. I was sounding the warning call in 2004, but for the most part, it fell on deaf ears. By the end of 2005, it was getting obvious that a train wreck was about to occur.
Like all other forms of investment - when the casual spectators become active participants, the end is near. My father once told me that, "When the widows and orphans line up on Wacker Drive to invest their life savings at Stein Roe - it’s time to get out of the stock market." He could not have been more correct.
Such speculation in Atlanta real estate was not nearly as intense as some places in the nation - like Florida, California, or Arizona… therefore the pains associated with declining property values have not been as drastic. The market has slowed, but similar aged homes similar conditions have, for the most part, simply failed to increase in value over the last few years.
That’s a far cry from watching 20 or 30 percent of your property value vanish. Atlanta homes that did lose value often did so because the owners failed to maintain the condition of the property - or their neighbors failed doing so. The days of buying a property and doing NOTHING to maintain it - and expect a nice return on the investment - are over.
What’s In Store For The Future?
In looking at the big picture, the economy has been doing fairly well - all things considered. In the past, recessions have usually occurred within a year of a housing peak. Right now, the economy has endured seven quarters without a recession since the last housing peak… so if we were going see a recession, we probably would have seen one by now. That’s not to say that one won’t occur - just that it’s not as likely as once believed.
Of course there is softness in the economy, and this is an election year - so prepare to hear a great deal of "doom and gloom" in the months to come. It’s just the nature of the beast. And when the public hears the economy is worsening with a recession looming - they have a tendency to curtail their spending. Truly a self-fulfilling prophecy.
While the Federal Reserve is attempting to lower mortgage rates by reducing short term interest rates, there are more than $50 billion of five-year, interest-only loans in the market that were written at very aggressive loan-to-value ratios that could become defaults at a significant level if those loans can not be refinanced this year.
These defaults, along with the substantial increase in foreclosures we have recently witnessed, will continue to provide downward pressure on housing prices here in Atlanta. That’s good news for buyers - and bad news for sellers.
What Should You Do?
That all depends upon your situation. This particular real estate climate is very good for those who are looking to buy their first home… or those who want to move up to a more expensive home.
On the other hand, if you’re selling simply to move - or downsize - this market is going to inflict some pain on you. When you sell to move up, you can save more money on your purchase than you will lose on your sale - thus this makes good economic sense. Economic downsizing, however, will likely cost you money in this market.
If you are buying or selling, I recommend that you use the services of an experienced agent - not some newbie with little experience. At least five years selling real estate full time would be my minimum. Why? Because even if the inexperienced agent worked for free - it will usually cost you money.
When I first started out in this business 10 years ago, I went to work under one of the top agents in the country. By doing so, I was able to tap his experience to ensure my clients would not get short-changed - especially during negotiations. I can remember several times when my mentor was able to point out how we could improve our position in the transaction considerably, and this guidance often saved our clients much more than our brokerage fee.
If you are thinking of buying your first home - I would make sure that your credit score is as good as possible. Working closely with an experienced loan officer can help you take the proper actions to ensure that you’ll get the best mortgage rate possible. My favorite loan officer is Cindy Hill, and you can reach her at 770-572-7002.
If you are thinking of selling a home, consider your options carefully. I have counseled many people against selling in this market (yes, some agents don’t mind telling you the truth) so unless you have a good reason to sell - stay out of this mess. But if selling does make the most sense for you, do so wisely. Make sure your property is in good condition and price it properly - or you’ll just be helping your neighbors sell their homes.
Conclusion
I don’t expect a full real estate recovery until the speculators return to the market - and that is difficult to predict, as they will not only have to return to the market… they will have to come back in impressive numbers. Assuming no change in the various investment markets, this could take a few years. This period, however, could be shortened depending upon who wins the Presidential election this year.
Some of the candidates view wealth as something evil (while they, themselves, amass a great deal of wealth) and many of them have pledged a commitment to raise capital gains taxes… perhaps retroactively. If one of these candidates with this philosophy appears likely to win this election - the stock market could take a hit as "the smart money" would be getting out and looking for a new place to grow.
Keep in mind that most of the recent run-up in real estate values came after 9/11 - when "the smart money" left the stock market and found its way into real estate. The same fundamentals that propelled the housing boom can happen all over again.
And that’s why it can be a good time to buy or move up.
