The Housing Crisis Is Over
By CYRIL MOULLE-BERTEAUX
May 6, 2008; Page A23

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets’ perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

OUR OPINIONS: ATL spared worst of home crisis

The national housing malaise continues, there’s no doubt about that. And there are plenty of “for sale” signs planted in yards of both new and existing Atlanta homes.

It’ll likely be a year or more before we again see a booming residential real estate market in this country. But compared with the nation as a whole, things don’t look quite as dire in Atlanta and the South, at least by one measure reported recently.

Thanks for that, in part, go to a relatively healthy local economy that’s still creating jobs and luring newcomers to this region.

Nationally, sales of new homes slammed downward in March to lows not seen in more than 16 years. The national median home price in March was 13.3 percent lower than it was a year ago. And this is at the start of the traditionally hot spring sales season.

In the Northeast, where the market had been boiling hot only a couple of years ago, prices declined 19.4 percent compared with March 2007. That gives new, and painful, meaning to the term “market correction.”

By comparison, the South saw the smallest dip in March new-home sales —- 4.6 percent.

Generally, lower home prices and the lack of big price run-ups in past years surely played a role in the South’s relatively good showing. Local real estate watchers say the Atlanta market is gradually reconciling the supply of homes with demand, which should help things recover. It was a rough but necessary market adjustment as home builders cut construction schedules and sellers of existing homes dropped prices.

Fewer homes on the market will match up more closely with the number of potential buyers.

Eugene James, Atlanta division director for Metrostudy, which surveys the housing industry, expects to see sales pick up coming out of the historically slow winter months.

He says local home builders are starting to report more prospective buyers looking around subdivisions.

And more “under contract” stickers are being slapped on “for sale” signs, Realtors say. “Contracts are starting to happen as we’d hoped they would happen,” said James.

Realistically, we’re a long way from the hot housing market to which we’d grown accustomed. Still, Atlanta should count itself lucky that the region’s still packing in home buyers moving here to fill the jobs we continue to create.

—- Andre Jackson, for the editorial board (aajackson@ajc.com)

Housing market: With its robust growth rate, Atlanta is set to bounce back sooner, stronger than many areas.

By Seth Weissman, Dan Forsman
For the Journal-Constitution

Published on: 04/14/08

The reports of the demise of Atlanta’s housing market have been greatly exaggerated.

The much publicized housing bubble was never more than a small bump here in Atlanta. In parts of Florida, California and Nevada, housing prices doubled and tripled between 2001 and 2006. During the same period, home prices in Atlanta increased a slightly higher than normal 4 percent to 5 percent per year. Price increases in other parts of the country were unsustainable, and what went up eventually came down. Not surprisingly, where prices went up the most, they also came down the most. For all the bad press about housing, home prices in the Atlanta region fell less than 5 percent over the last year.

While fear and uncertainty have caused the number of overall home sales to fall sharply in Atlanta and around the country, home prices here have not fallen anywhere near as much. This is because while housing is a commodity, it is also a place where people live. The majority of home moves are discretionary. If the market is unfavorable, discretionary buyers and sellers sit on the sidelines. This can cause a decline in the number of homes sold without having much of an effect on prices.

Home prices in the Atlanta region are somewhat immune to a large price drop because we benefit from a wonderful safety net. Our metro region adds about 150,000 people per year. Between 2000 and 2006, our region added 856,266 people, a growth rate that was the highest in the nation. Almost 2 million additional people are expected to move here over the next 12 years. With so many new families moving to Atlanta, the demand for housing will remain strong.

While there are more than 100,000 homes on the market today, it will not take long to absorb them based on our current rate of growth. This is particularly the case since homebuilders started cutting back on new construction three years ago and permits for new homes have now fallen dramatically.

Home buyers are confused about getting a mortgage and the large number of homeowners at risk of being foreclosed. Despite all the hoopla about a credit crunch, it is surprisingly easy to get a mortgage if you have decent credit. While the same cannot be said for buyers with bad credit, this represents less than 10 percent of the market.

The degree to which foreclosures will stress our local market will depend on what actions our federal government takes to solve the problem. However, foreclosures are highly concentrated in certain neighborhoods rather than being evenly distributed throughout the metro region. As a result, housing markets in desirable neighborhoods with low foreclosure rates are already showing signs of strengthening.

Less desirable neighborhoods hard hit by foreclosures may limp along for years in a recurring tale of rich neighborhoods getting richer and poor ones getting poorer.

Smart housing decisions tend to boil down to a focus on location. While there are many factors that make a neighborhood desirable, the more important ones include quality homes, good schools, low tax rates, low crime rates and good access to work centers and shopping. Driven by traffic congestion, an aging population and changes in consumer preferences, what is considered a good location is also changing. There is a reason that all those condominiums and mixed-use developments are being built —- they are filling a demand from aging baby boomers and young professionals. While developers may have gotten a bit ahead of themselves in this area, the smart money is on the demand for this type of housing to grow exponentially over the next decade.

Housing prices in Atlanta, not having fallen much, should not have far to go to predictably rebound. In a few years, due to the health of our local economy, housing prices should be higher than at the peak of the previous cycle.

Sellers whose homes are worth less than they were a year ago and who psychologically feel poor should not have to wait too long to feel better about their circumstances. Of course, rather than waiting to sell until prices recover, savvy sellers have figured out that if they can get an equally good deal in purchasing another home, they are still ahead of the game.

A $200,000 home in Atlanta in 2001 was likely worth $260,000 in 2006. With a 5 percent drop in housing prices, that house today would be worth $247,000. While a $47,000 increase may not seem like much, as a rate of return on the typical buyer’s cash investment, it is very healthy. Housing is and will continue to be a tremendous builder of wealth for buyers who can ride out the periodic cycles in the market.

A strong buyer’s market and low interest rates are allowing buyers to get great deals on housing. As the spring market gains momentum, the best deals are being snapped up. The advice of “buy low, sell high” has never been more apt. Buyers should act accordingly.

> Seth Weissman is senior counsel to the Georgia Association of Realtors. Dan Forsman is president and CEO of Prudential Georgia Realty.

Home sales get welcome boost

By Martin Crutsinger
Associated Press

Published on: 03/25/08

Washington —- After falling for six straight months, sales of existing homes posted an unexpected increase in February which may have reflected more aggressive price cutting by sellers in some parts of the country, a real estate trade group reported.

The National Association of Realtors said that sales of existing homes rose by 2.9 percent in February to a seasonally adjusted annual rate of 5.03 million units. It was the biggest increase in a year and caught economists by surprise. They had been expecting a small decline.

The trade group reported that the median existing sales price in February fell to $195,900. That was the largest year-over-year drop on records that go back to 1999.

Lawrence Yun, chief economist for the Realtors, said that prices in some formerly hot markets in California and Florida were seeing significant price declines now as sellers try to attract buyers.

Analysts cautioned against reading too much into the one-month rise in sales.

Many economists are predicting that the steep slump in housing will not bottom-out until later this year after prices fall further and allow huge levels of unsold inventories to be reduced.

“We’re not expecting a notable gain in existing-home sales until the second half of this year, but the [February] improvement is another sign that the market is stabilizing,” Yun said.

By region of the country, sales surged by 11.3 percent in the Northeast and were up 2.5 percent in the Midwest and 2.1 percent in the South. The only region of the country to see a decline in sales was the West, where they dropped by 1.1 percent.

David Ellis, executive vice president of the Greater Atlanta Home Builders Association, said his members are reporting an uptick in the numbers of prospective buyers visiting model homes around metro Atlanta.

“It’s probably the start of the spring sales season,” Ellis said. “Buyers are starting to wake up to the fact that there are some great buys out there.”

Ellis pointed out that Atlanta’s home prices have not fallen as dramatically as those in many other urban markets.

Sales of existing homes fell by 12.7 percent in 2007, the biggest decline in 25 years.

Over the past two years, housing has been in a steep downturn made worse by a severe credit crunch as financial institutions tightened their lending standards in reaction to their multibillion-dollar losses on mortgages that have gone into default.

The steep slump in housing has raised concerns about a possible recession.

Democrats are pushing the Bush administration to do more to stem a tidal wave of mortgage foreclosures to keep more unsold homes from being dumped on an already glutted market.

Sen. Hillary Clinton, campaigning for the Democratic presidential nomination, on Monday called on President Bush to appoint an emergency working group on foreclosures to recommend new ways to confront the housing crisis.

“Over the past week, we’ve seen unprecedented action to maintain confidence in our credit markets and head off a crisis for Wall Street banks,” Clinton said. “It’s now time for equally aggressive action to help families avoid foreclosure and keep communities across this country from spiraling into recession.”

A new community of luxury homes by Builder of the Year Mayfield Homes is coming soon to Brookhaven. Look for more details here…soon.

By John Adams
Contributor
Published on: 01/06/08

The Federal Reserve cut the federal funds rate by a quarter-percentage point recently to the lowest level in nearly two years. The move is designed to stimulate the economy and prevent a credit crunch from hurting consumer and business lending. Real estate sales should benefit from this.

Banks typically base their prime interest rate on this federal funds rate plus 3 percent, bringing the prime down to 7.25 percent. Lowering the prime rate tends to lower overall borrowing costs and encourage consumer and business spending.

Lowering the prime helps everyone making payments on loans that have an interest rate tied to prime, including many ARMs tied to the one year T-bill, most home equity loans, many business loans, and even some credit cards. In addition, by leaving more money in consumers’ wallets, the central bank hopes to encourage local banks to lend more money.

So how will Georgia real estate owners fare in 2008? There are favorable factors on the horizon for this new year:

> The cost of borrowing is still remarkably low, with 30-year fixed-rate loans for owner-occupants hovering around 6 percent, making this a great time to lock in a long-term loan. Interest rates tend to move up and down in cycles, and this home loan rate is very near the historical lows of 2003. And let’s face it —- the cost of borrowing is one of the prime drivers of real estate sales.

> Georgia has largely dodged the real estate meltdown that has hit Michigan, California, Florida and New Mexico. In fact, the economy here is strong and growing. We are adding jobs daily. And that’s another driver in real estate sales.

Our part of the United States has experienced much more stable growth and less of the speculative frenzy that drove up home prices wildly in some parts of the country. Remember that all real estate is local, and what’s happening in New Mexico is not relevant to what’s happening in your neighborhood. Many of those negative reports miss this point completely.

> Home prices in Georgia have not slipped, and, in fact, are still rising, though modestly. The average home in Georgia is worth more today than it was a year ago. As hard as it is to believe, your real estate is still a good investment and is likely to be worth more in the future.

> People still need a place to live, and they almost always prefer to live indoors.

With an additional 2 million to 3 million new residents projected to arrive in the Atlanta area over the next 20 years, we will need a lot more housing units than are currently available. And that new housing will cost more, not less. I am not suggesting a housing boom during 2008, but I am saying that demand is going to increase, and we will need new housing to meet that demand.

> This current market won’t last. The southeastern United States (even Florida) continues to attract new jobs and new residents. People are moving here to fill jobs, and other people are moving here for a sunny retirement.

In a recent study, the Realtors’ chief economist Lawrence Yun stated that he believes the worst part of the credit crunch has worked its way through the economy, and projected existing home sales in the United States to trend up in 2008.

He projects existing home sales to reach a total of 5.67 million for 2007, making last year the fifth highest on record. He looks for a total of 5.70 million homes sold in 2008, compared with the 6.48 million units sold in 2006. His prediction for new-home sales is slightly gloomier, stating that a recovery for this part of the market is unlikely before 2009. The new-home market traditionally makes up around 16 percent of all home sales annually.

These things tend to go in cycles, and when the current new-home inventory finally dries up, and the glut of foreclosures gets absorbed, demand will force prices higher in the years ahead. How high remains to be seen.

I am willing to go on record as predicting that 2008 will be seen as the year of the real estate turnaround in the Atlanta metro area. Home demand will be strongest in the detached single-family “under $300,000″ range, and sales will begin to pick up in spring, then improve through the remainder of the year.

The December holidays are traditionally one of the deadliest times of the year on our nation’s highways, and impaired driving is a big part of the problem. To help make this year safer, Geerdes and Kim, LLC supports National Drunk and Drugged Driving (3D) Prevention Month, calling for stronger policies and programs to deter impaired driving, impaired motorcycle riding, and impaired walking. The campaign focuses on a communities approach. Every part of the community — businesses, citizen groups, health care providers, police agencies, schools, government, the military, etc. — has a role to play in the fight against impaired driving.
Geerdes and Kim, LLC is joining with groups in every state for National Lights On For Life Day on Friday, December 21, when motorists are asked to drive with their headlights on all day to remind people about the impaired driving problem and in remembrance of those killed by impaired drivers.
As part of the CARE Life Saver Weekend, December 21 - 23, police agencies across the nation will step up enforcement efforts against impaired drivers and motorcyclists, speeders, aggressive drivers, and others who make the roads especially dangerous at this time of year.
For more information about local 3D prevention events, call Katie Morales at 404-257-1777.

Construction is expected to begin in April on a $42 million mixed-use project in Brookhaven. Dan Woodley Communities Inc. plans to begin the third phase, called Brookhaven Village, of its $340 million development off Dresden Drive.

Brookhaven Village, on 5 acres, will have two townhouses, a single-family home and 49 condominiums, said Dan Woodley, principal. The project, at 1448 Dresden Drive, also calls for 40,000 square feet of retail space along the ground level of the condos and 22,000 square feet of office condo space, he said.

The townhouses will be priced in the mid-$700,000s and the condos will sell for between $240,000 and the $800,000s, Woodley said.

Phase 1 and 2 of the projects were Brookhaven Estates and Brookhaven Park, Woodley said.

The first condos should be available in first quarter 2007, he said.

This article provided by: http://www.developingatlanta.com; March 31, 2006: by Giles Stevens

Brookhaven is alive with new development! Building on his success with Village Park at Brookhaven, home to Haven and Valenza Restaurants, Dan Woodley Communities has a sister community under constuction on Dresden called Village Place Brookhaven. In other news…coming soon on Peachtree, just north of Moe’s Southwest Grill, is Town: Brookhaven. The 600,000-square-foot, $500 million project will include upscale shopping, 15 restaurants and mixed-use residential and office space. It will feature nearly a dozen local restaurant concepts including Ray’s on the River, Nuevo Laredo Cantina, Atkins Park Tavern, Rolling Bones Premium Pit BBQ, San Francisco Coffee Roasting Co., The Real Chow Baby: New American Stir Fry, Genki Noodles and Sushi, Sogno Gelato, Raving Brands’ The Flying Biscuit Café and Moe’s Southwest Grill and Mirko Pasta, from a co-owner of the Figo pasta chain. They are also looking to add 10 local fashion retailers, such as Bill Hallman.

In addition to restaurants and retail, Atlanta-based Trammell Crow Residential, Atlanta-based The Columns Group Inc., and Lincoln Property Co.’s Southeast division will build nearly 1,000 apartments and 55 townhouses. The Sembler Co., is also expected to have 150,000 square feet of office space when complete in 2009.

Contact Byron Williamson with all of your Brookhaven questions and needs. Byron has lived and worked in Brookhaven for over 5 years! Besides working and living here, Byron owns multiple investment properties in the area! His investment in the community is absolute. There is not a more knowledgeable real estate agent in all of Atlanta!
www.BYRONWILLIAMSON.com
Byron@byronwilliamson.com

Roadway debris - and the accidents it can cause - has become an increasing problem in metro Atlanta. And according to the Georgia DOT, 85-90 percent of road trash comes from unsecured loads, with half of that coming out of the back of pickup trucks. Unfortunately, items such as ladders, lumber, and clothing have become common sights on busy roads and highways around the city.
While 25 percent of the trash is just plain litter from fast food items, larger items can be dangerous and deadly. Please do not depend on the weight of an item in your truck to keep it in place! Unexpected sudden stops, potholes, turns, and even the wind from your travel speed can wreak havoc on any load. “It’s like a mini-hurricane in the back of your truck when you are going down the interstate,” says David Studstill, chief engineer of the GA DOT.
Please give special attention to mattresses, large appliances, lumber, tools, ladders, landscaping stones and concrete materials like cinder blocks. Secure them tightly with heavy binding or rope. Place the heaviest items as close to the cab as possible. Smaller, lighter items such as half-full paint cans or empty containers should be covered with a tarp or canvas; make sure the covering is pulled taut and tied down to prevent the wind from getting underneath it.
Even benign litter like fast-food take out bags and containers can be dangerous on the highway, since people often slow down and swerve to avoid hitting anything unidentified in the road. And whatever kind of trash it is, be aware that it costs all of us money. “$14 million of taxpayer money is spent every year on picking up litter,” David says. “It’s terribly expensive.”
If you happen to spot roadway debris in metro Atlanta, dial star-DOT on your cellphone. The call goes to DOT’s Traffic Management Center, which is staffed 24/7.
– Beth Rice