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Atlanta Residential Real Estate Offers Buyer Opportunities

Photo credit: ERA Sunrise Realty

Prices in the battered Atlanta residential real estate market have fallen to levels not seen in almost 20 years. While this is certainly bad news for local landowners, it also provides great opportunities for buyers seeking to enter the market at its low point.

And the fourth quarter of 2011 could be that low point in the metro area, experts say. After plummeting for several years, prices should stabilize over the winter, start slowly climbing next year, and move towards more normal levels by 2013.

Atlanta was one of the country’s hottest real estate markets during the 1990s and early 2000s. However, both residential and commercial development stalled with the 2008 economic meltdown. Georgia’s economy was heavily tied to the development market, so the state was hit by both bad financial times and a severe drop in new construction. Now land is selling for record-low prices, attracting developers, passive investors and potential homeowners looking to lock in a deal before prices rebound.

Statistics Reflect Poor Market Conditions

“The Atlanta metro area was one of the hardest hit areas in the nation following the housing market downturn,” according to the Obama Administration’s Housing Scorecard, released in early December by the U.S. Department of Housing and Urban Development and the U.S. Treasury Department. The administration said Atlanta is “under pressure from a high percentage of distressed mortgages, deeply discounted foreclosed properties, low property values, and many severely underwater mortgages.”  {“Underwater” refers to the situation where a homeowner’s mortgage balance is higher than the current market value of the underlying property.} Atlanta has exceeded the national average for distressed mortgages since mid-2000. The government added, “The home sales market remains sluggish in Atlanta as local home prices have shown signs of rebounding since early 2009, but remain at low levels not seen in more than a decade.”

Several national studies released in early December rank Atlanta as one of the poorest performing markets in the United States. Clear Capital reported that from August to October 2011, Atlanta home prices fell 9.7% -- and dropped 18.9% over the preceding 12 months. The Atlanta area also had a 42.8% REO (real estate owned) saturation rate during the preceding three months. “The increase in REO as a percentage of all sales is the result of a decrease in overall transactions and inflow of distressed properties,” Clear Capital stated, “and is most likely creating the downward pressure on prices.” With national home sale prices increasing 0.3% during that period and the country’s REO saturation rate averaging 25%, Clear Capital ranked Atlanta as the lowest performing major U.S. market.

Another study by CoreLogic found metro Atlanta residential prices fell 7.9% from October 2010 to October 2011. For the same period, Georgia ranked fifth worst among the 50 states with a 7.3% decrease. Those numbers are almost double the average 3.9% national price drop year-to-year.

Similarly, Standard & Poor’s Case-Shiller Home Price Indices report in September showed that Atlanta prices are now averaging 4% below the baseline prices set in 2000. Factors in that downward trend include heavy foreclosure activity (almost 30% of the Atlanta total, according to some media reports), increased short sales (where homes are sold less than their loan value), and a large volume of purchases by investors taking advantage of those market conditions.

Opportunities for the Future

Despite the current pain in the market, investors with cash to spend are stepping in to scoop up homes and land in anticipation for an eventual recovery. Interest rates are also at historic lows, with the Federal Reserve promising to maintain current levels until at least mid-2013. Any improvement in the general economy – particularly in the job market – could also reignite housing prices and restart stalled development, although substantial progress is not expected in job creation through 2012.

Current conditions, however, may not last much longer. Local realtors say the inventory of available homes fell from their peak in 2010 to about 11 months’ supply by early 2011, and have dwindled further as the year progressed. Atlanta experts expect residential foreclosures will finally start to decline in 2012 – if only because there are fewer candidates for foreclosure. (Equity Depot, a real estate analysis company, said Atlanta’s foreclosures dropped 14% in December 2011 to the lowest total in almost three years.) Experts also see good deals on infill residential properties and lots near the interstates, both of which will again be in high demand once the Georgia economy rebounds. Local governments are also reportedly showing more flexibility in promoting building projects of all types as they seek any means possible to stimulate the state’s economy.

For the U.S., Bloomberg Businessweek is predicting home prices may begin to rise by the fourth quarter, adding, “Even the worst-hit markets will begin to see improvement by 2012.” With Atlanta topping many lists as one of those worst-hit markets, the metropolitan area should also be among those with the most growth potential when the long-awaited recovery finally returns the Atlanta area to its traditional role as the economic engine of the southeastern United States.

Questions or comments? Please email Michael Fenton at mfenton@atlantapacificgroup.com

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