| Atlanta Existing Home Prices Remain Resilient |
| Written by Jonathan Smoke | |
| 11.12.2007 | |
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Discuss this article on the forums. (0 posts) In the series of articles I wrote last week on the questionable dire forecasts for home prices in the latest issue of Fortune, I mentioned that the negative forecast for Atlanta was one of the main reasons the article grabbed my initial attention. Today I thought I would leverage our many resources at HousingIntelligence to show what home prices look like in Atlanta. First, in Atlanta median existing home prices reported by the National Association of Realtors continue to chug along at a slowly increasing pace roughly in-line with the historical trend. 2007 has not seen the declines that the average MSA has seen in existing home prices.  Digging into Neighborhood Insights we see that price per square foot trends hit some resistance in its annual trend toward newer levels in 2007. With closings data through August of this year, the price per square foot for all home sales in 2007 is actually lower than the value for 2006. This decline is being driven by a decline in the price per square foot of new homes.
I further reviewed the home price trends in Neighborhood Insights broken down by the income levels of home buyers in Atlanta. The price per square foot on existing homes is under pressure and has seen decline in purchases by households with incomes under $75,000, but above that level existing homes have seen price increases. In the new home market, all but the very high end have seen price declines. That’s not surprising since Atlanta is a fiercely competitive new home market with few constraints to supply. However the bulk of that supply and competition is in first time and first move up homes priced under $300,000. )) Click on image for larger view The heavy builder discounting is helping to move the new home inventory, and as that inventory gets to a comfortable supply level, new home pricing pressures will ease. When this happens, home prices in Atlanta will continue their slow march to keep pace with and slightly ahead of inflation. Based on our own proprietary analysis, we see less than a 10% chance of Atlanta seeing home price declines between now and 2008. That’s a far cry from the double-digit price decline forecasted by Fortune. 
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No. 1 : $/sqft margin of error Jonathan, I wonder how much you believe the $/sqft is being supported by the pervasive incentive of builders (and some resales) to maintain their pricing artificially by offering significant discounts such as cash back or upgrades. While mortgage companies are supposedly watching for abuses of this, it no less affects the "reported" or documented pricing. I have seen extremely aggressive discounting in FL (up to 40%) that is shown in various ways on the HUD. This bolsters the price reported, but is not indicative of true price. It is my belief that this is not yet pervasive in Atlanta, but I do believe that the leveling and slight declines shown in your analysis are modest compared to the reality. I wish I had data to back it up, but I don't believe it exists. Thus, I'd like to get your opinion on that. Thanks for all you informative blogs. No. 2 : No measure captures extent of upgrades and incentives Greg, You are absolutely right to point out that the $/sqft for either new homes or existing homes can be propped up by offering incentives and upgrades that don't get factored into the final recorded price of the home. Perhaps the best example would be closing costs-- by definition they aren't related to the home but in this kind of market are definitely likely to be paid by sellers/builders. Upgrades are even more difficult to pick up-- a high-end stainless steel appliance package that's thrown in doesn't effect the square footage at all so it's an effective way to prop up the recorded price. There's no formal way to measure the level of incentives like this, although ultimately we'll see the impact on builders' net margins. I do think that if we could measure all incentives, we'd likely see that new homes have been discounted down even more than existing homes as individual sellers except in a situation of absolute necessity will avoid losing significant equity-- a homeowner will sit tight until the market is better. Builders can't sit tight-- the business depends on cash flow. I also agree that the degree of discounting is likely more severe in former hot markets, so Florida's main markets are much more likely to see these kinds of practices than less frothy markets like Atlanta. When you consider that the 2007 level of new home sales will be in a range that's fairly healthy from a historical standard, you know that builders are doing everything they can to move inventory, especially in the markets where existing home prices have gone down. So the level of incentives must be just enough to get consumers to move. Thanks for the comment and question! Jonathan |
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