Much anticipation surrounds the spring ’13 real estate market; will the “improvements” seen over the last year carry forward? Nationwide data suggests the bottom may have been reached but we think there are seven distinct hurdles to be cleared before saying the housing market has corrected. We expect that in many parts of metro Atlanta, the spring market will be a strong one in terms of buyer activity – how that translates to closings remains to be seen. We anticipate significant challenges; appraisals being front and center. Actively involved in both appraisals and sales, we see potential issues on the horizon that could – if not properly prepared for – cause hiccups.
All real estate is local, which is vital for home sellers to remember. Home prices in Alpharetta are not following the same pattern as home prices in Brookhaven. We’ve already heard from home sellers in East Cobb that they expect to list 10%+- higher based upon media reports of the “recovering market”. It is illogical to expect this market to turn on a dime; sellers must be cognizant of the entire process and prepare for the expected hurdles. Problems due to unrealistic pricing can be significant; from appraisals to buyer qualifications. Remember, be cognizant of the data and have applicable data ready to support your position. Given the chronic tendency for many agents to tell sellers what they want to hear and then lower price after listing, it might be a good idea to have an independent appraisers give you an opinion of what your home might be worth.
Appraisal problems have been a continuous issue and one that isn’t likely to go away anytime soon. The reasons are many; creation of management companies, significantly reduced fees, departure of experienced appraisers, out of market appraisers, poor quality reports, unrealistic underwriting and a shortage of comps. The pool of comps used in the spring comes from fall/winter sales; and that is not a large pool. Additionally, if list prices are increased to take advantage of the “rising market” how are appraisers to reconcile that with fewer sales that are generally generally lower in price while trying to maintain what underwriters mandate? Start making adjustments for appreciating values? Not likely. We see the potential for appraisals to be a continuing problem this spring.
For years, everyone expected rates to rise but they have remained ridiculously low. Running a deficit as this country has been cannot continue, nor can these rates. While they won’t likely blast very high, conventional wisdom suggests 4%-5% is on the horizon. Still great rates historically speaking, but will those be considered “high”? Will that keep potential buyers on the sidelines?
Underwriting and Mortgages
For several years, complaints of unrealistic buyer requirements have been heard. Self-employed buyers are especially hard hit but stories of “vanilla” buyers with 750+ credit scores being denied are common. Many applicants, agents and even those in the mortgage business have said it appears that lenders simply do not want to lend money. A rather large segment of the public is convinced that the bailout and subsequent “foreclosure settlement” was complete nonsense. Any genuine recovery is going to continue to be hampered by unrealistic underwriting requirements and given the uncooperative stance of the banks, can this be exepcted to change?
Just as home sellers have to be based in reality, so do home buyers. Home buyers must have a definition of success, be prepared ahead of the search and be ready to execute when opportunity presents itself. Inventory is down and “quality” inventory is even scarcer; when a well maintained, accurately priced home hits the market buyers will visit it. In the desirable area, forget the idea of writing an offer well below list. Also dismiss the idea that foreclosures or bank owned homes will be bought on the cheap, they will not be. There are many buyers that fumbled opportunities and now they find themselves still looking. Define success so that when it’s found it’s acted upon.
Real Estate Agents
Several articles point out that the number of agents is again beginning to swell, this isn’t a good thing. While it can be argued that every business has its issues with quality, real estate is notorious. The majority of agents do not earn a living from real estate, this is a part time “job” for many and they are simply ineffective. Additionally, many buyers and sellers feel compelled to use an agent they know or are related to even when doubt exists about their qualifications. Buyers don’t typically pay for representation; there is no earthly reason not to carefully select an agent. Sellers will pay, even more of a reason to demand experience and excellence. Selecting an experienced and skilled real estate agent is arguably the single most important part of any transaction. Remember, boring is good; if you walked away from the transaction saying “what did they do to earn that commission” then you should say it with a smile.
Listing inventory has been dropping for a while, significantly in the Atlanta market over the last year. Bank owned (REO) inventory has also dropped, but many say homes are being held off the market. Additionally, many cities including Atlanta are experiencing bulk REO purchases. Hedge funds, private investors, REITs and even individuals are buying homes in bulk, both off the MLS, on the courthouse steps and from liquidators directly. The results include multiple offer situations, over list price sales and homes selling very quickly once listed. Another result is that some data can be skewed as a result. Bulk purchases in East Point showing 99% sale to list ratios and 5 days on market have nothing to do with a “traditional” home for sale in Roswell. This reinforces the importance of segregating the data and comparing apples to apples It also reinforces the need for an experienced and data centric agent that can collect and explain the data.