The real estate market for Metro Atlanta has changed dramatically in 2012. We predicted a few years ago that the pace of foreclosures would slow and new homes would not be able to restart fast enough. The result would be an undersupply of desirable properties for sale – and we were right! The chart above shows the change in “for sale” inventory for the main counties of Metro Atlanta. Real estate markets are driven by supply and demand plus a few outside factors like mortgage rates and the mix of unusual properties like short sales & foreclosures. It is clear that supply is considerably low relative to previous periods. Right now there is a 4.4 month supply of inventory at the current rate of closed sales – which is below the 6 months that would be considered normal.
But what about the trends for demand? Trendgraphix reports that year-to-date closings for Metro Atlanta are up 12% from the same period last year. If you annualize those numbers, we expect to see around 70,000 to 75,000 homes purchased this year. At the peak of 2006, there were 125,000 home sold in Metro Atlanta. At the bottom, we saw only 60,000 homes sold. The 125,000 number was artificially fueled by easy mortgages and the new homes bubble that burst. We believe that a normal market for our area should see around 80,000 to 85,000 homes sold. We are slowly but surely working our way back to normal levels.
The increased demand and lower supply are reflecting in a faster pace of sales. The “Average Days On Market” has dropped an average of 50 days from the run-rate at the beginning of the year. That represents a 40% improvement in the number of days to sell a property.
So what about those outside factors like mortgage rates and the pace of short sales and foreclosures? Mortgage rates remain at all-time lows. On September 13th, the Fed announced a new program to purchase $40 billion dollars per month of mortgage-backed securities. The effect will certainly keep mortgage rates artificially low in the short term. This is different from the decision last year to fix interest rates at effectively zero for banks to borrow money. The mortgage market is impacted by a range of factors other than the interest rate. So this new program of purchasing mortgage securities will keep mortgage rates artificially low for an extended period. Note that we used the phrase “artificially low” since we do not expect these conditions to last and we will have to pay substantially higher rates at some point in the future.
The pace of foreclosures & short sales has slowed relative to last year. In 2011, we saw an average of 10,000 to 12,000 pre-foreclosures per month. In 2012, this has slowed to the 4,000 to 6,000 range. Pre-foreclosures are “notices of default” from the bank to the property owner and are a good early stage indicator for short sale or foreclosure trends. The pace of banks actually foreclosing has also slowed and the sales of the current bank-owned properties are higher than the incoming rate of foreclosure by 34% (see chart below). This means that we are absorbing the current inventory.
But what about the shadow inventory? Shadow inventory is the foreclosed inventory being held by the banks but not currently listed for sale. Some estimate that these are significant numbers and will be released into the market early next year. We do not expect to see a flood of new inventory hitting the streets. Banks are not likely to flood the market and harm their own property values. We see them pursuing bulk purchases to large investors. We also see them being more aggressive in streamlining short sales so they can more efficiently move properties.
Investors are very active in Metro Atlanta. There are some very large and well-funded groups plus many smaller investors or individuals. There is demand for rentals in every price point. But the sweet spot appears to be properties in the $75,000 to $200,000 range that are able to be purchased at a good price and placed into rentals. The rental market is very strong in Metro Atlanta. There are thousands of good people that have been through a short sale or foreclosure that do not have the credit to qualify for a purchase loan. There are also thousands of younger people who are choosing to rent until they are more comfortable with their employment and financial situations. Some move-up buyers are choosing to buy now and take advantage of great prices and historically low mortgage rates. They are renting their current homes and plan to put them on the market for sale in the future when values are higher. Some baby boomers are doing the same thing as they migrate to more energy efficient homes that are better suited for their changing lifestyle.
If you are interested in renting your property, we have a full service property management solution that can help you. This is a more complex area than most realize and we have the infrastructure and resources to allow you to relax and not worry about your rental property. Contact us to learn more.Visit www.PetersenPartners.com today!