21 February 2012
I had a very enjoyable and educational lunch with one of my clients yesterday, on January 31st. He is a homebuilder here in Atlanta. Last year, in 2011, he was able to successfully sell 92 homes that his company had built. So that’s impressive in any market but especially in the type of real estate environment that Atlanta finds itself in right now.
The thing that was very educational for me and interesting was what he was saying about where he thinks real estate home prices are going in Atlanta for 2012. When I chatted with him about real estate prices in 2011, he nailed it. He was talking with me about a tax credit being lifted and he said when those got lifted he thought real estate prices would go back down and he was absolutely correct. To start out 2012 he sees many signs that have him hopeful that at some point in 2012 the Atlanta home market will hit bottom.
Now this is a pretty significant conversation because Atlanta is one of the major cities in the United States of America. So Atlanta is a pretty good sampling of an economy that represents the United States. It’s not as if Atlanta was a small isolated city with one factory or one university that ran the whole town. [No insult to the many towns that fall into this category. I was born in a town with a huge Good Year plant.]
The two big reasons that he cited to me that he believes we’re going to find the bottom in 2012 in Atlanta home real estate prices is (1) he sees the number of foreclosures coming onto the market as decreasing. He has been seeing it gradually decrease over the past few months, over the past maybe six months. So he thinks that the pressure, which the foreclosures are putting on real estate prices, is slowing down. He says we’re certainly seeing foreclosures but not in the mass numbers that we have seen in the recent past. So he expects that to help home prices bottom in 2012, in Atlanta. 
But the big reason that he is so excited is that he sees the inventory of home resales being extremely low and the lowest that he has seen in a while. He said one of the big causes of the real estate price drop of homes in Atlanta was that there were so many homes for resale and he said now what we’re seeing is that the Atlanta home market perceives that it is a buyer’s market so people aren’t putting their homes on the market. The biggest example he cited was he talked to one of the larger real estate offices in Atlanta and that the last time he talked to the owner of it they had 36 homes listed and no “sold” listing next to it. He said currently this same real estate office has six homes for sale and all six of them are under contract or “sold”.
So as we’ve been talking about for several months here in this newsletter, I’ve shown you graphs where the gold to real estate ratio has become very favorable to real estate and we’ve also talked about REITs shooting up in 2009 and 2010. We’ve also talked about how the REITs lead real estate prices. Now REITs are investment vehicles that are comprised of companies that are in the real estate space and so what we’ll see is REITs shoot up and then a few years or months later, usually years later, we’ll see the actual land prices go up.
Finally, what we’ve talked about in this newsletter is where usually when the government prints mass amounts of money it will affect the stock market first, it will affect bond prices next and then it will affect real estate prices last. So if we have happen what I think is going to happen, if we were to see interest rates go up and we were to then see real estate prices go up that would be historically what we’ve seen after a big money printing schedule from the government.
We have already seen U.S. stock prices shoot up from the money that was printed. We saw prices shoot up in 2009 and 2010. So I don’t know that we’re going to see U.S. stock prices shoot up anymore; however, we certainly have not seen any type of recovery in land prices or home values and the long bond has remained relatively healthy (low interest rates) as well. We’ll continue to keep our eyes on these very important markets.
Whether or not the home prices in your city will exactly follow Atlanta is not important. US home prices, in the major cities, roughly followed each other. You may have one city lag or lead another by 12 months at the most, but the price action was the same.
