While there are always some areas that do better than others across a large metro area like Atlanta, Georgia, the fact is the vast majority of metro Atlanta has witnessed a double-digit drop in sales compared to the same period in 2013, according to Realty Trac.
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Marietta, GA – an upper middle class community just 25 miles northwest of downtown Atlanta, boasts a thriving downtown district, along with a combined Lockheed facility and Dobbins AFB, surrounded by plenty of upper middle-class homes. Home sales are down 23.3 percent, though home prices have risen almost 4% over the same period.
In a real shocker, Roswell, GA, one of the most prime residential growth areas in all of north Atlanta, has seen home sales fall a whopping 33 percent since this time last year. This is truly amazing to an Atlanta native such as myself who watched Roswell grow from a small cluster of horse farms into one of metro Atlanta’s best housing markets along with industrial parks full of of big corporations with great paying jobs. Home appreciation in this area is still well below pre-2008 levels and clearly buyer demand for single family homes is not what it used to be.
The unthinkable has happened
Most of metro Atlanta is down significantly from 2013. Other metro communities showing double-digit declines include: Norcross, down 20.6%, Jonesboro, down 24.3%, and Decatur, the investing hotbed of metro Atlanta, down an amazing 40%. Just a few years ago, numbers like this would have been unthinkable, unimaginable. But here they are. So what if home values are rising if no one is buying?
And to add insult to injury, foreclosure activity, though down from the record levels of 2010 and 2011, still represents a fantastic bargain as compared to owner-occupied resales and new construction. In fact, according to Realty Trac, on average, a foreclosed home in metro Atlanta sells for 62.7% LESS than a non-distressed property. An amazing deal, yet buyer demand is still sagging. And this is April data, which is prime home buying time in the south. But Atlanta still has a growing population, so where are they all living?
A rise in renters and sharers?
I’d venture to guess that what were are seeing is a massive shift away from home ownership to renting in the metro Atlanta area. With the average per-person income around $25,000 per year, home buyers aren’t exactly rolling in dough. While incomes in downtown Atlanta are usually higher, the burbs and rural areas average much lower incomes per person.
Neighborhoods are seeing more and more instances where there are multiple cars in the driveway, indicating that more than one family or more than one generation are moving into houses together. Families are moving in with each other, parents and kids, kids staying home longer, in-laws moving in with children, etc. One of my friends recently noted that she has observed a growing number of homes in her affluent upper middle-class neighborhood where families are combining households instead of starting new ones. This is highly unusual in her area. At least, it used to be highly unusual.
Buyers are also well aware of the sagging demand and the high inventory of foreclosures that are still for sale, and they are looking for real bargains, not just the 5% discounts that were standard in years past. I recently dealt with the sale of an investment property that had appraised for $110,000 in 2007. Last month this 3 bedroom 2 bath brick ranch with a new roof and a 3/4 ac lot, sold for a measly $50,000 in move-in condition.
Investors still have an opportunity
It’s also clear that the hedge fund investors who came to Atlanta with suitcases full of cash have been reducing their purchases since late 2013. The sales numbers have been going south since that time. Just as I suspected, the housing sales data and home price appreciation were basically being engineered by the big institutional buyers. There simply is not enough demand from qualified buyers who actually want to live in the property. Investor buyers create lots of sales activity, but the home is still vacant – they do not buy to occupy.
I have my doubts about the cash flow prospects for the big hedge fund companies. I think they over-paid in Atlanta, on the assumption that rents were more in line with what they are used to up north or out west. I’m predicting that their returns are going to be marginal at best, where Atlanta properties are concerned, due to a combination of very high property management costs, higher than anticipated vacancy rates and unrealistic projections about rental income. I expect that their “poop will hit the fan” before too much longer.
But all that being said, small investors who really know their local market are still getting good deals and selling homes at a profit. Home buyers know a good deal when they see one. And they are looking for great houses at discounted prices. Many individual investors who are good at “fix & flip” are making money selling renovated homes well below the builder and MLS price points.
The key to investment profits in the Atlanta market is knowing your market and what prices homes will bring, then keeping buy prices and rehab budgets in line with reasonable expectations. Having loads of cash is not necessarily an advantage when you lack detailed market knowledge and direct experience.