The latest Case-Shiller Index was published on April 24, 2012. As always, the index reports on data 60 days in arrears. Therefore, the index reports Metro Atlanta home values for February 2012. So what does the latest index show and what does that mean for home values in metro Atlanta? 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 or median homes 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. According to SmartNumbers, almost 50% of closed sales are under $100,000 and the normal distribution would be in the 10-15% range. That skews the average sales price and median price lower. The median price is simply the home sales price in the middle of the properties selected. The Case-Shiller Index reports on repeat properties sold and other factors which are generally better indicators of home values. Second, this index reflects the average home values for all of Metro Atlanta. Remember, real estate is local and every market is different. There are some local communities that have held their values reasonably well and others that may continue to decline. In fact, some homes entering the market are getting multiple offers and closed prices above list price. Your local Prudential Georgia Realty agent can help you understand the specific metrics in your local market. However, the Case-Shiller Index is a good general indication on what is happening in our market.
Now for the news…. The February index for Atlanta shows a 2.52% decrease in homes values from January 2012. The last seven months show a combined 22.29% drop which reflects the fact that short sales & foreclosures are driving down values. The Case-Shiller Index is a “rolling average” which means that trailing results can slightly change the results for the past few months. The current index reflects values similar to home values in the winter of 1996. The February index is 83.29 which is down 2.52% from January and down 17.27% from February of 2011. Atlanta had the largest decline of any major metro since last year.
But remember that real estate is local and markets are different! Many of our sub-markets are seeing positive gains as their “for sale” inventory is getting very low and the mix of short sales & foreclosures is already back to lower levels. The latest numbers from Trendgraphix and RealValuator show the “for sale” inventory down 35% from last year and down 41% from 2010. Your local PGR agent can show you the specific conditions in your market so you can make better decisions.
Click on the link below to open the Excel spreadsheet that shows the details of the latest index.
Case-Shiller-Index-Atlanta-February-2012-Index-Reported-April-2012
The peak of our market was July of 2007 according to the Case-Shiller index. Since July of 2007, our homes values have slipped 38.97%. We expect to see a slight decline in the march index with values rising in the spring and summer. If you average the Case-Shiller Index for the past 12 months, we are down 29.9% from the peak. We believe it is more effective to use the ”average of the past 12 months” or “trailing 12 months” as an indicator instead of reacting to a specific month. Click to view the graph of the latest Case-Shiller results from 2010, 2011 and 2012.
If you look back further at home values, you can see that we had the bubble in homes values but are actually below the normal trend line. Of course, this is caused by an oversupply of short sales and foreclosures. As we work through this inventory and return to a more normal mix of resales and new homes, home values will rise.
The big factors to watch will be the pace of short sales and foreclosures entering the market and mortgage rates. Your local Prudential Georgia Realty agent can show you the specific trends in your local area for foreclosures, short sales and notices of default. Recently, we have seen mortgage rates dip back to historic lows again. The Fed has announced that interest rates will be frozen through the middle of 2014. They have also implemented Operation Twist which is a program intended to keep 30-year rates low. But mortgage rates are impacted by more factors than just interest rates. There are major legislative issues and other economic factors that could cause mortgage rates to rise. For example, the proposed legislation for QRM (Qualified Residential Mortgages) will require mortgage companies to hold back 5% in capital reserves for every loan. That is expected to be funded by higher mortgage rates. Analysts also predict the eventual demise of more exotic loan types like ARMs and interest-only loans. We will more likely see plain vanilla mortgages of 10, 20 and 30 years with a 20% down payment. This is all part of the financial reform legislation. Right now, there is an incredible window of opportunity to buy the home of your dreams and set a future mortgage rate that we will not likely see again in our lifetimes.
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 for Metro Atlanta now. Future demand for our housing is strong. 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 this winter for Metro Atlanta but expect a slow recovery. We expect to see annual home values slowly increase over time with a few bumps along the way. Prior to the real estate recession, Case-Shiller reports an average annual appreciation of 4.1%. In 2013 or 2014, we expect to see a seller’s market return with higher than normal appreciation for a few years. In fact, we are already seeing that in some of our local markets right now. Contact us to learn more about future predictions and how that impacts your decisions.
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 19.32% Homes Bought in 2001 – Loss of 23.60% Homes Bought in 2002 – Loss of 26.43% Homes Bought in 2003 – Loss of 28.75% Homes Bought in 2004 – Loss of 31.17% Homes Bought in 2005 – Loss of 34.47% Homes Bought in 2006 – Loss of 37.46% Homes Bought in 2007 – Loss of 37.87% Homes Bought in 2008 – Loss of 32.09% Homes Bought in 2009 – Loss of 23.17% Homes Bought in 2010 – Loss of 21.25% Homes Bought in 2011 – Loss of 15.32%
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:
Demand From Buyers (We finished 2011 with over 70,000 homes purchased – a 20% increase from 2010. The activity is very strong so far in 2012 with closing up 11.8% from 2011.)
Mortgage Rates/ Credit Availability (Average mortgage rates in the past 50 years were 8%. We expect to see historically low mortgage rates this winter and the 1st half of 2012. We expect to see rates start rising during the 2nd half of 2012 and into 2013. In 3-5 years, we expect to see rates in the 6-8% range.)
Supply/ Inventory Levels (Most of our markets are showing inventory levels down 25% – 30% from the prior year levels. We expect inventory to remain at very low levels as we begin to move toward a sellers market.)
Competition from Short Sales/ Foreclosures (We expect to see significant numbers of short sales & foreclosures for the next two years. We predict that short sales and foreclosures will be approximately 50-60% of the transactions in 2012. However, we do not expect a flood of foreclosures that drives the overall inventory too high. Banks are not likely to harm their own values and there is a significant move to sell foreclosures to large investors who transition them to rental properties.)
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!
