You’ve probably heard some of those “good news, bad news” jokes. There’s the one where the doctor tells the patient, “I’ve got some good news and some bad news. The good news is the tests showed that you have 24 hours to live.” The patient asks, “If that’s the good news, what could possibly be the bad news?” Doctor says, “I meant to call you yesterday.” Funny joke, but if you think about it, it’s a really sad situation. So it is with the real estate/housing market in America today. The joke is on all of us who thought home values would continue to go up year after year. But when you look at the reality of foreclosed homes, fortunes lost and dreams destroyed, it is very sad indeed.
For years, the Loganville/Grayson area was one of the top housing markets in the nation.
At one time, Gwinnett County ranked as the fastest growing county in the U.S. Almost everyone in our community had some type of connection to the home building industry. The buzz of the circular saw and the thump, thump, thump of the nail gun were the melody and lyrics of our regional anthem. However, just as the old adage says, “the bigger they are, the harder they fall”, it is also true “the faster the real estate market boomed, the quicker and deeper it has crashed.” Now, if you see someone building a home in this area you stop and stare, like you’ve spotted a bald eagle. In August, Walton County had 164 foreclosure notices. That means that 1 out of every 198 homes got a foreclosure notice, just in August. Walton County, with only about 32,000 homes, had 1 more foreclosure notice in August than the states of North Dakota, South Dakota, Wyoming and Vermont combined. Before you say, “Yeah, but those states don’t have very many people”, please note that these states have a total of more than 1.2 million homes. Their foreclosure rate is 1 in 7,643 – 39 times better than Walton County. Now is not the time, nor is this column the place to discuss who or what is to blame for the implosion of the housing industry. Suffice it to say, let’s look for a way to make lemonade from the lemons that surround us.
Even within this gloomy housing cloud there is a silver lining.
For all the bad news there is good news for some in our community. For those in the market to buy a home, the opportunity has rarely been better. The glut of distressed properties and near record low interests rates have combined to make homes more affordable than at anytime in the last 20 years. According to the National Association of Realtors the monthly principal & interest mortgage payment ($725) on the median priced home ($157,000) in the South, is now about 13.8% of the median family income ($56,201). The national figure is 14.1%. This compares to the average of almost 20% over the past 20 years. The National Association of Home Builders reports that in metro-Atlanta 78.1% of all homes sold in the 2nd quarter of this year were affordable to a family earning the median income. Nationally, the Housing Opportunity Index was considerably lower at 72.6%.
Let’s look at a specific example to make the point clearer.
Consider a couple who bought a typical 3 bedroom, 2 bathroom, 1,850 square foot home in Loganville or Grayson in 2007. The price would have been about $160,000 ($86.49/sq ft). Using a 30-year FHA mortgage with a rate of 6.0%, the total payment, including principal, interest, taxes, insurance and FHA mortgage insurance, would have been about $1,164. Today you could buy a similar home for about $100,000 ($54.05/sq ft). Your FHA rate would be about 4.25% and the total payment would be approximately $744, representing a savings of 39% compared to 2007. (There have been some significant changes to the FHA loan program since 2007, but these calculations take those changes into account.)
Nationally, foreclosures appear to have peaked in 2010.
The slowdown may have been caused more by a legal technicality in the foreclosure process called “robo-signing”, rather than by an improvement in the economy. At the end of July banks were holding 476,000 repossessed homes, a 17% decline from 574,000 in September, 2010. However, foreclosure activity seems to be on the upswing again. After a downward trend for nearly a year, RealtyTrac (RealtyTrac.com) reports that foreclosure filings in August increased 7% over July, but still down one-third from August 2010. In Georgia, actual foreclosure auctions increased 22% from July to August, while the country as a whole saw a 1% decline for the same period.
Of course, the rising unemployment situation in the U.S. has also contributed to the decline in the housing market. People without jobs certainly can’t buy homes. At 10.2% Georgia’s unemployment rate is worse than the national rate of 9.1%. This is another reason that home values are even more severely depressed (translated: better opportunity) here.
For home buyers who have a secure job, a good income, good credit and no house to sell, opportunity is not just knocking, it’s pounding on your door.
When you do an analysis of renting versus buying, it’s a slam-dunk in favor of buying right now. There are many different online calculators you can find to make this assessment for yourself. There’s not much I like about the New York Times, but they do have one of the best Rent vs. Buy calculators I’ve seen. Realtor.com has a pretty good one also. I looked at an example of buying a $100,000 home with a 3.5% down payment and 4.25% FHA mortgage. I used average figures for taxes and insurance in this area. I assumed that home values will not increase at all during the next 6 years. I compared this with renting at $900 per month, with a 2% annual increase in rent. Even considering the cost of real estate commissions to sell your home after 6 years, you would have been $17,000 better off to have owned compared to renting.
While I think there will be another increase in foreclosure activity, and that our economy isn’t going to improve much over the next year, there’s no way to know when this window of opportunity might close. Our federal government could implement a program that would change everything. Also, interest rates could begin to skyrocket at any moment. If you think you might have even the slightest interest in buying a home, either for your primary residence or for investment, you need to take action soon.
Next time we’ll look at specific steps for the first time home buyer to take in this market.
For more information, or specific real estate assistance, contact Charlie at Home Gold Realty (770-815-6028) or charlie5576@gmail.com.
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