Case-Shiller Index Reported February 2011

Before we provide the answer, we want to make two caveats.  First, the Case-Shiller index of home values is very different from average sale prices which only reflect what was actually sold in the market.  If lower priced homes are selling more, then the average sales price will show a lower value than what market value may be for higher priced properties.  This index also reflects “the averages” for all of metro Atlanta.  Remember, people do not buy houses in America or even in metro Atlanta.  They buy a specific property on a street in a local community.  Real estate is local and every market is different.  Your local agent expert can help you understand the specific metrics in your local market.  However, these metrics are a good general indication on what is happening in our market.   

Now for the news….  The December index set a new 10-year low.  The March 2010 index was the previous low before these past few months in Metro Atlanta.  The current index reflects values similar to home values in the winter of 1999.  We are returning to a more normal seasonal pattern which tends to see home values rise in the spring and summer months with drops in the fall and winter.  The November index is 99.92 which is .9% down from last month and 8.01% down from December of last year.  The root cause for these results are the aggressive prices of short sales and foreclosures in our market.  Click on the link below to open the Excel spreadsheet that shows the details of the latest index.

Case Shiller Index Atlanta – December 2010 Index – Reported February 2011

The peak of our market was July of 2007 according to the Case-Shiller index.  Since July of 2007, our homes values have slipped 26.78%.  We expect to see lower index numbers through February or March with increases in the spring and summer.  If you average the Case Shiller Index for 2010, we are down 22.5% from the peak.  We expect the get to the 25% down range based upon the 2010 annual index over the next few months.  We believe it is more effective to use the annual average indicator than reacting to a specific month.  The big factor to watch will be the pace of short sales and foreclosures entering the market.

Remember, you will not know the bottom of the market until it is already passed.  We believe that we are seeing the bottom of the market this winter.  The AJC recently published a report from the Economic Forecasting Center at Georgia State University that predicted we would see over 60,000 jobs in 2011 and over 78,000 in 2012.  A report from the Atlanta Regional Commission forecasts 3 million new residents in the next 30 years.    Our conclusion is that we are seeing the bottom of homes values for Metro Atlanta but do not expect a robust recovery.  We expect to see annual home values slowly increase over time with a few bumps along the way.     

If you look at the average annual Case-Shiller index for each year, here is how homes purchased in recent years would compare to the current index: 

• Homes Bought in 2000 – Loss of 3.21%
• Homes Bought in 2001 – Loss of 8.34%
• Homes Bought in 2002 – Loss of 11.74%
• Homes Bought in 2003 – Loss of 14.52%
• Homes Bought in 2004 – Loss of 17.43%
• Homes Bought in 2005 – Loss of 21.39%
• Homes Bought in 2006 – Loss of 24.98%
• Homes Bought in 2007 – Loss of 25.46%
• Homes Bought in 2008 – Loss of 18.53%

Yes, we are slowly climbing our way out of this unprecedented housing crisis – but we are not there yet.  So where will home values go from here?  The key factors that will impact our home values include the following: 

1. Demand From Buyers (We expect demand to improve for 2011.)
2. Mortgage Rates/ Credit Availability (Average mortgage rates in the past 50 years were 8%.  We expect to see historically low mortgage rates but expect to see rates rising during 2011.  In a few years, we expect to see rates 1-2% higher.  We also expect to see adjustable rate mortgages and other more exotic loan options disappear in 2011.)     
3. Supply/ Inventory Levels (We expect inventory to remain at slightly low to normal levels with a heavier mix of short sales and foreclosures for the next two years.) 
4. Competition from Short Sales/ Foreclosures (We expect to see significant numbers of short sales & foreclosures for the next two years.  Analysts predict that short sales and foreclosures will be over 60% of the transactions in 2011.  However, we do not expect a flood of foreclosures that drives the overall inventory too high.  Banks are not likley to harm their own values.)  

You and your agent should be carefully watching the trends for short sales and foreclosures.  Yes, we will continue to see some ups and downs along the way, but home values will rise again.  In a few years, short sales and foreclosures will return to normal levels.  The new homes inventory will remain low.  That means we will see an undersupply of homes for sale and values will begin to rise.  In 5 or 10 years, many will look back and regret not buying their dream home when they had the chance!   Check back for our next posts with the latest facts and insight that can make you money!