Looking Ahead to the Spring Atlanta Housing Market…and Challenges Expected

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.

Home Sellers

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.

List prices must be based upon accurate & credible data. Agents must present intelligent & cogent supporting arguments based upon that data; raise the bar when choosing an agent as it will play a role in success.

Appraisals

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.

Interest Rates

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?

Home Buyers

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.

Buyers will find competition for quality listings; prepare for multiple offers & even list or above list contracts. The strong buyer’s market appears over in the desirable areas.

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.

Inventory

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.

  1. Lee Taylor

    Well put.

    We discussed the underwriting roadblock yesterday – I always appreciate your insight.

    Banking realities and geopolitical shifts will not make for a buoyant recovery – this will take a decade + …

  2. Deryk Harper

    Hank, you covered the main points of discussion with your usual frank, and accurate, knowledge and experience.

    I definitely agree that we are no where near out of the woods at this point and still sit on a fragile precipice between recovery and another downturn.

    The typical NAR/Media spin on the last few months of stats seems to be misleading many Sellers to think that they can bump up prices 10% to 15% and their home should still sell when experience tells us that will not be the case.

    IMHO the median sales price increase is basicaly due to the bulk investors buys that you mentioned in your post and does not really accurately reflect an increase in value. It just means that less homes are selling in the lower price range becuase most of the available homes have been bought up. Many Buyers are not able to move up to a higher price range due to the credit/income qualification issues that you also mentioned. This means they will have to take a lower quality product or just not buy at this time.

    The fiscal cliff could also cause many higher end home owners to put their home on the market next spring due to the increased tax burden of home ownership if we lose the deductions for interest on mortgages. Flood the market with high priced homes, and at the same time reduce dramatically the number of Buyers of those homes, and the basic law of supply and demand will send prices in that sector DOWN!

    We can also confirm your data that foreclosures, short sales and other distressed properties are selling much closer to market value than they have in the past. Probabaly 70% of our Buyers have bid on distressed properties in the last 6 months and most end up in multiple offer situations with sales prices exceeding asking price by 5% or more in some situations.

    Thankfully, due to Buyer education, and having a “definition of success”, most of our Buyers are thrilled when they win a bid even if it is at, or slightly over, asking price.

    Thanks for your much needed “voice of reason” in a market media spin environment that is often difficult for the average Buyer/Seller to make sense of.

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