Atlanta Real Estate - The Housing Bubble?
Increasingly, more and more articles are talking about the Housing Bubble. I prefer to refer to today's activities as a "Natural Correction" resulting from supply and demand factors in our economy. Demand has weakened and supply has increased. The natural result should be a reduction in prices.
Several times in recent years the Federal Reserve has elected to make increases in the Discount Rate. Simply stated, this means that banks have to pay more to borrow money from the Depositors and the Federal Reserve. This forces the banks to pass on the higher costs to the consumer - us the borrowers. This results in higher interest rates, in general, and ultimately higher loan rates for purchasing homes.
We were lucky and refinanced into a 30 year fixed loan when rates were in the 4.5% to 5% area. Today, we're seeing 6% to 7% for most of our normal higher credit score buyer clients. That's about a 25% increase in the cost of borrowing money. Excluding equity, that means all buyers can afford about 25% LESS when purchasing a home than they could a few short years ago. A Buyer that could have afforded a $250,000 mortgage payment would now only qualify for around $201,000, Banks qualify borrowers based on monthly payment affordability, which is influenced by the purchase price and loan interest rates.
Higher interest rates have an effect of "screening" buyers and this means less people qualify for a $250,000 house than a few years ago. This decreases demand. Some buyers will WAIT TO BUY the kind of home they want, but can't currently afford until the rates fall, rather than buy a smaller house now. I don't blame them for waiting.
Good Morning America (GMA) had a segment on the housing market last week and I'll paraphrase some of their highlights:
*THere are NOW 40% more Homes avalable for sale on the market than last year. A local Interstate sign shows 90,000+ homes for sale in Atlanta. (more supply) *There has been an 11% decrease in existing home sales (new homes not in this figure)from this period last year. (less demand) *Buyers are being encouraged by the GMA guest spokesperson to make LOW OFFERS and find the highly motivated sellers WHO HAVE TO SELL. *Sellers are being encouraged to take their first offer, because 80% of the time they'll be better than later offers for other buyers. I'd echo this finding. STALE listings - homes on the market more than 90 days are VIEWED AS OVER-PRICED BY BUYERS. The buyers and their agents tend to over correct for this when they make an offer and ultimately a seller will loose more money waiting. Additionally, we've seen estimates that it costs a seller 1% to 1.5% EACH MONTH A HOME IS UNSOLD.
Here are a couple my suggestions based on local Atlanta activities:
*If you want to "trade up" to a large home, this is a good time, especially with the fall/winter buying season coming soon. You'll get less than you want for your cheaper home but save more purchasing the more expensive one. Later, when rates fall, you can refinance. *If you're selling your large, expensive Primary residence and are downsizing or moving to your second home, or your lake home, you should get a 30-60 day appraisal from a competent appraiser and price your home to sell in "today's market". Prices normally tend to soften in the fall and winter in Atlanta. *If you're a first time buyer or moving from a rental to a home, I'd recommend following the GMA spokesperson's advice, but be prepared to make several offers before finding a truely motivated seller.
Several times in recent years the Federal Reserve has elected to make increases in the Discount Rate. Simply stated, this means that banks have to pay more to borrow money from the Depositors and the Federal Reserve. This forces the banks to pass on the higher costs to the consumer - us the borrowers. This results in higher interest rates, in general, and ultimately higher loan rates for purchasing homes.
We were lucky and refinanced into a 30 year fixed loan when rates were in the 4.5% to 5% area. Today, we're seeing 6% to 7% for most of our normal higher credit score buyer clients. That's about a 25% increase in the cost of borrowing money. Excluding equity, that means all buyers can afford about 25% LESS when purchasing a home than they could a few short years ago. A Buyer that could have afforded a $250,000 mortgage payment would now only qualify for around $201,000, Banks qualify borrowers based on monthly payment affordability, which is influenced by the purchase price and loan interest rates.
Higher interest rates have an effect of "screening" buyers and this means less people qualify for a $250,000 house than a few years ago. This decreases demand. Some buyers will WAIT TO BUY the kind of home they want, but can't currently afford until the rates fall, rather than buy a smaller house now. I don't blame them for waiting.
Good Morning America (GMA) had a segment on the housing market last week and I'll paraphrase some of their highlights:
*THere are NOW 40% more Homes avalable for sale on the market than last year. A local Interstate sign shows 90,000+ homes for sale in Atlanta. (more supply) *There has been an 11% decrease in existing home sales (new homes not in this figure)from this period last year. (less demand) *Buyers are being encouraged by the GMA guest spokesperson to make LOW OFFERS and find the highly motivated sellers WHO HAVE TO SELL. *Sellers are being encouraged to take their first offer, because 80% of the time they'll be better than later offers for other buyers. I'd echo this finding. STALE listings - homes on the market more than 90 days are VIEWED AS OVER-PRICED BY BUYERS. The buyers and their agents tend to over correct for this when they make an offer and ultimately a seller will loose more money waiting. Additionally, we've seen estimates that it costs a seller 1% to 1.5% EACH MONTH A HOME IS UNSOLD.
Here are a couple my suggestions based on local Atlanta activities:
*If you want to "trade up" to a large home, this is a good time, especially with the fall/winter buying season coming soon. You'll get less than you want for your cheaper home but save more purchasing the more expensive one. Later, when rates fall, you can refinance. *If you're selling your large, expensive Primary residence and are downsizing or moving to your second home, or your lake home, you should get a 30-60 day appraisal from a competent appraiser and price your home to sell in "today's market". Prices normally tend to soften in the fall and winter in Atlanta. *If you're a first time buyer or moving from a rental to a home, I'd recommend following the GMA spokesperson's advice, but be prepared to make several offers before finding a truely motivated seller.
posted by Atlanta Ga Homes Real Estate at 11:07 AM
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