Buyer’s Market or Seller’s Market?

BUYER’S MARKET OR SELLER’S MARKET?
by John Adams

The real estate market in metro Atlanta has shifted dramatically in the past 18 months. And that shift has brought both buyers and sellers an unprecedented opportunity to achieve their real estate goals. Determined buyers are able to buy, and motivated sellers are able to sell, but the question is always asked: Is this a buyer’s market of a seller’s market?

I believe the answer to both questions is “Yes!”

Yes, this is a buyer’s market because:

1. There is an ample supply of reasonably priced homes currently available in the Atlanta area. It’s true that new home builders have been slow to gear up for the recovery, but that situation is remedying itself even as you read this column.
2. Resale homes are still a bargain compared to their pre-recession levels. In many parts of town, homes can still be bought for substantially less than a buyer would have paid in 2008.
3. Sellers in many areas are still willing to cooperate with buyers by offering to assist with closing costs and other expenses that can prevent a buyer from purchasing a home.
4. Interest rates for long-term home loans are still at historically low levels, allowing buyers to lock-in a rate that will reward them monthly for decades to come.

I believe most borrowers overlook the fact that there is substantial value in the financing of their home. Consumers need to realize that two identical homes, situated side-by-side, can have very different values due to their underlying financing.

If we once again see double-digit interest rates for home loans, existing loans at 5.0% will be extremely desirable. And even though almost all loans now carry a “due-on-sale” provision, owners will always find a way to profit from such a rate differential, even if it means renting the home to others.

And at the same time, yes, it’s a seller’s market because:

• The number one problem in the Atlanta real estate market for the past five years has been the sea of foreclosures that decimated property values.

As homeowners lost their jobs and were unable to pay their mortgages, lenders turned to the remedy that had always worked for them in the past: non-judicial foreclosure. But instead of being made whole at the auction block as they expected, lenders found themselves in possession of literally thousands of vacant homes, many unsecured and most needing some level of repair.

The banks drowned in a problem of their own creation, refusing in most cases to modify a borrower’s loan in favor of the more familiar path to foreclosure, ending the process with possession of an asset that was rapidly declining in value, and poisoning the surrounding neighborhood.

Only in the past eighteen months has the investor community geared up to buy and renovate these homes, a process which stabilized values and reversed a trend of declining prices. At least for now, we are beginning to see a return to normalcy in most areas, though there are still some pockets of unstable values.

• Overall, typical home selling prices have increased by more than twenty percent in the past eighteen months. That strong showing represents the underlying knowledge that people have to have a place to live, and that our economy is, in fact, recovering from a serious recession.

While that rate of increase is not sustainable in the future, it has allowed many underwater owners enough breathing room to negotiate a sale. And it’s important to note that we have seen no retreat in prices since the recovery began.

• The most important factor in making this a seller’s market is the dramatic decline in the inventory of homes for sale in the metro area. At one point several years ago, reports circulated that we had an inventory representing almost 24 months of consumption.

Analysts consider a 6 month inventory as being a state of equilibrium between buyers and sellers. The current inventory is now quoted at 3 months – a solid seller’s market.

So what does all this mean? Is it a buyer’s market or a seller’s market?

It appears to me that both sides of the transaction are benefiting from the current state of our economy. And from this perspective, it actually seems to be getting better on a monthly basis.