Atlanta Housing Update - October 6th, 2006

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By sonnypage
October 9, 2006

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Most of you here on Mishedlo know by now that my wife and I are Realtors and associate brokers who live and work north of Atlanta. Today, Friday, the Atlanta Board of Realtors held a luncheon at the Twelve Hotel at Atlantic Station, which is in midtown. When I learned a few weeks back that our guest speaker would be David Lereah (luh-ray), chief economist with the National Association of Realtors, I made certain that we had tickets. My wife and I drove down with T.M., another Realtor/broker in our office. We arrived early, which I had planned on, and put our cards on three places at the front table. I wanted to have front row seats. I noticed three other reserved seats at our table. We spent the next half hour chatting with other guests as they arrived and then took our seats when asked. On my left was Melba, the current president of the Atlanta Board, and across from her was Mike, our 2007 president elect, who also happens to be a managing broker with the same company we are affiliated with. The seat between them was for David Lereah, and sure enough, he arrived just as we were all taking our seats. We would have a chance to chat with him over lunch before he spoke to our group. It seems he had just spoken yesterday to a Realtor group in south Florida and he told us the mood there was pretty grim. So how did we feel about the market, he asked. I responded with cautiously optimistic and others at our table seemed to agree. David explained that his speaking to us today was arranged with something else in mind. His son is an entering freshman at Ga. Tech, which is less than a half mile down the road. He would be going to see his son after leaving us and staying over for the Ga. Tech/Maryland game tomorrow.

Here are my notes from his presentation with us today. He told us a warm up joke, which drew a lot of laughter, but then told us that Realtors in south Florida, where he spoke yesterday, were not laughing. Their business is off 60% from last year. Ours here in Atlanta, he pointed out, was not off nearly as much. Nationally, real estate sales are off 12%, but there are wide variations between the various markets. He went back to 1991 as the year our real estate expansion started, and that expansion, in his opinion, was fueled by three primary factors. Those factors, according to Lereah, were steadily declining mortgage rates, along with baby boomers increasingly entering their peak earning years, and finally, strong immigration trends. After 2001, and the 911 event, the expansion morphed into a boom. Americans were using real estate as a safe refuge in the face of a crisis, instead of, in his opinion, gold, which they had run to in the 1970's. Well, he is obviously off on that, as many of us here well know. Gold has been spectacular since 2001. At any rate, he said that money seeking safety was the culprit, but pointed out that by 2005, 40% of all real estate transactions were investors, not actual homeowners. Trillions went from stocks into real estate in what was perceived as a flight to safety.

So what else did he have to say? What lies ahead? We are in transition from a sellers' to a buyers' market and prices must come down more before we get there. In some markets, the declines are almost over. He cited Boston and Chicago as markets where the declines are almost over. On the other hand, south Florida has another year of declines to go, and California, probably two more full years to get there. Speculation pushed prices way ahead of the incomes needed to support those prices. He points out that this housing slump is different. The economy remains strong in his opinion; employment is good, mortgage rates still low. His point is that other housing slowdowns in other times have been triggered by weak economies. This time the economy is strong. Lereah's bottom line is that by next year most markets, including here in Atlanta, will be much more back to normal. Pockets of weakness will remain in California, south Florida, and some of the east coast resort areas like Hilton Head. But for most of us, better days are ahead. Is he right? My crystal ball lies irretrievably shattered on the floor. I have no idea. I will watch and wait along with the rest of you.

In our personal business, we are still stuck at twelve transactions year to date. Over the past five years, we have averaged twenty five deals a year, so, we are obviously deep in the hole. On a positive note, we are still working on the largest transaction we have ever done. We are still not there but getting very close. This is a big one, folks. Keep your fingers crossed for us.

I am still long precious metals, 60% of my portfolio, with other commodities, primarily energies, and emerging markets making up most of the rest. I like gold, I really like silver, and I continue to hold.


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