My wife and I are Realtors and associate brokers who live and practice real estate north of Atlanta. We are north of the Chattahoochee River up in Roswell and Alpharetta. If it's Tuesday, then it is business meeting day, the day when all Realtors with our company meet in their respective offices for a meeting with presentations and discussions. Most firms have the same policy, certainly in greater Atlanta. Tuesdays are the days you meet and then, in days gone by, go on "caravan", although that tradition is rapidly dying with newer technologies.
Where is residential real estate going from here? I will give you just two items that I learned in today's meeting. They alone will give you a pretty good answer. First, there was a very heated discussion this morning of the role appraisers are playing in today's market. When the real estate market was hot, and lenders were eager to lend and aggressively going about that, then appraisers were accused of leading prices higher. They did so with the complicity of the lenders. Today it would seem, they are now leading prices lower, again in my opinion with the complicity of their lenders. Here is an example given this morning. An area of north Atlanta just south of us has experienced price depreciation of 4% to 7% over the past six months. Let's say you are a potential buyer and you have just gone under contract in that area at a price of $100,000. You and the seller, in negotiations through your Realtors, arrived at that price fully considering the comparables in the area. Because of that, the contract price is 5% lower than it would have been just six months earlier. Both buyer and seller are satisfied that $100,000 is now a fair price.
You have a great FICO score and you are prepared to put 20% down as lenders are now requiring as a minimum. It would seem that all is well and you are headed to a smooth closing. Your lender sends in their appraiser and, surprise, the appraiser says the home is worth not 5% less than six months ago, but rather 10% less. Again, in this area, comparables are saying prices have slipped 4% to 7% but lenders seem to be demanding of their appraisers an additional "cushion". Appraisals are routinely coming in at a full 10% less than six months earlier. So what are your options now as the buyer? Well, perhaps you can renegotiate with the seller for a price of $95,000. If not and you still want the house, then your lender will still finance your loan, but only for 80% of $95,000, which is $76,000. You must now put up not only your $19,000 but also the additional $5,000 difference, for a total of $24,000. You are now putting down not 20% but rather 24%. This plus higher mortgage rates have quickly killed the already very weak recovery.
Then there is this. The first Tuesday of the month is foreclosure day in Georgia. In whatever county you live, on that Tuesday, foreclosed homes are sold on the courthouse steps. On the first Tuesday in July, two weeks from today, an astounding 16,000 homes may go on the steps in Atlanta and north Georgia. I say they "may", but baring a short sale or an extension, they will. I do not know the previous record but I am told that this is a dramatic new record. In the weeks following, all of these homes will be dumped into an already saturated real estate market.
In answer to my own question at the start of this post, real estate prices in Georgia at least are doomed to grind ever lower. Will next spring finally bring a housing bottom and a possible turnaround? We must wait and see.