Home price rebound tied to economic recovery

By John Adams

For the AJC

According to the recent S&P/Case-Shiller Home Price Survey, the current value of your Atlanta home is about where it was in the year 2000.

The 20-City Composite fell 0.8 percent from its level a year earlier. In October 2010, only four MSAs -- Los Angeles, San Diego, San Francisco and Washington, D.C. -- showed year-over-year gains. There is apparently no recession in our nation's capital, where values are amazingly 70 percent above year 2000 levels.

Six markets -- including the Atlanta metro area -- hit their lowest levels since home prices started to fall in 2007, meaning that average home prices in those markets have fallen beyond the market bottom seen in the spring of 2009.

It's beginning to look dangerously like a double dip.

The tax incentives ended last April, and the national economy remains gloomy. On a year-over-year basis, home sales are down more than 25 percent, and the supply of unsold homes is about 50 percent above where it was during the same time last year. Housing starts are still nearly nonexistent.

And while mortgage delinquencies have seen some improvement, it is only relative to the worst we have ever seen.

Why are things getting worse? It's the economy, stupid!

1. Winter is traditionally a time of slower activity in the metro Atlanta marketplace. Because the market has been so challenged as a result of the continuing recession, any slowdown in demand would necessarily cause more price weakness. My own advice to homeowners is "If you don’t have to sell now, don’t even try!"

2. Interest rates have increased in the past few weeks, and one of the few bright spots in the residential market has been declining rates. I believe many buyers were sitting on the fence, thinking rates might go even lower. This jump in rates over the past month has simply turned them off to the idea of buying. It may actually be cheaper to rent -- at least for now.

3. The real problem with Atlanta real estate values is the continuing flood of foreclosures. Every time one of these houses goes to auction, it increases the inventory that the bank is holding and hoping to sell.

The Federal Deposit Insurance Corp. is threatening to close Georgia banks that carry these nonperforming assets, so banks sell at a huge discount for cash. This decimates values in all nearby neighborhoods, and the huge inventory of vacant homes causes potential buyers to think twice before making an offer.

In addition, appraisers use these "distressed sale" prices to justify lower valuations for all similar homes within a mile or so radius.

Existing owners can't refinance because they are now "upside down," so they walk away from their homes. It becomes a "self-fulfilling prophecy" that prices must fall.

I personally believe that this situation is temporary, and that all values will be regained, but that is dependent upon job growth in metro Atlanta, and we simply are not there yet.

John Adams is an author, broadcaster and investor. He answers real estate questions on radio station WGKA-AM (920) at noon every Saturday.

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