The bottom line is that the Atlanta market has now made a fairly significant market shift or market correction. It is not as severe as what has been experienced by other parts of the country, but it is impactful, particularly if you are trying to sell a home. If you are buying a home it is a great time to buy, but be sure to lock in an interest rate immediately as rates are now climbing quite rapidly as inflation and recession concerns begin to surface.

Much of the data in this report and many of the articles presented by the media make comparisons to previous years and how dismal our performance is compared to last year or the year before. Although this is an important comparison, it does not focus on whether we are still following a natural housing trend. Just like the stock market, housing follows natural cycles of performance. The chart below demonstrates this. The Average Sales Price for a Single Family Home has dropped, but it is still following the natural housing trend we have seen in the past several years. We have just reached a new floor.

In the chart above, the green line with green dots shows 2008 pricing performance through May. Immediately, you can see the natural housing trend line I have referenced above. It demonstrates that our housing market has made a correction, it is still healthy, but if you purchased a home since 2004 and are now trying to sell it, you cannot expect to make any profit on that investment. Likewise, if you have taken out a home equity loan since 2004, you have likely already removed the profit from your investment. The benefit instead that you have reaped is the tax write-off and enjoyment of your home.

Lastly, for those of you that are selling, the next two months are the most critical. A high percentage of buyers want to be in their new home before school starts. Ensuring you are priced just above 2004 pricing trend levels and having your home in top showing condition will be critical to getting it sold in this market. As a buyer, now is the time that you will have the greatest supply of inventory. And, because interest rates are now reaching 7% and higher, the window on affordability is beginning to narrow. If you are waiting for housing prices to drop further, you may end up loosing your profit as interest rates climb.

Regardless of your situation, real estate continues to be the best investment you could ever make. And, Atlanta will continue to thrive even after this correction because of its growth, businesses, prime airport, and climate. If you have specific questions or need assistance in interpreting how the market effects your personal situation, please contact me or any member of my team directly. RKiHomes.com is here to help!

Don’t forget that this also means that the prime rate lowers by the same percentage leaving the prime rate at 5.00%. The prime rate is the fed funds rate plus 3%. This is not a rule/law, but a guideline followed by all major banks across the US.

How does this effect mortgage rates? Directly, it doesn’t. Indirectly, the ladies and gentlemen of the bond trading world (which is where our rates come from directly) will make decisions on how profitable they believe a particular rate of interest to be based largely on what the fed has to say about inflation and the future of our economy. The policy statement released by the fed stated some much expected commentary about a slower than normal economy and rising prices for energy and commodities. However, the statement also noted that readings on core inflation have improved. Inflation is the direct enemy of the mortgage rate world so this is good news for bonds. The less inflation, the better. As inflation occurs, the mortgages our investors bought 6 months ago is not worth as much so they lower what they’re willing to pay which equals higher rates. So this is good, the fed seems to be trying to ease some concerns about inflation. Although they did say “The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.” But you can probably even chalk this up to the fact that they don’t want to make concrete predictions.

Two side notes:

1. You may see a drop in your credit card interest rates (if it’s variable) and/or your second mortgage rates if you have one. These are traditionally tied to the prime rate in some way so make sure to check your statements to see if you get the benefit. If not, at least for your credit cards, call and negotiate a lower rate on the news.

2. The Federal Reserve Board has a fantastic website with a lot of consumer information that can be useful for you personally, and to give to your clients. The website is www.federalreserve.gov. Look under Consumer Information for great money saving tips to pass on to your database.

If you have questions, email me.

With rates dropping to their lowest point in 2 years, I think everyone should have a

Mortgage Check Up to see if their current mortgage is still meeting their financial needs. The most important aspect is to look at the cost to refi vs the monthly savings. A borrower may be able to drop their rate a point, but in some cases it may not make sense for the client to refinance due to an upcoming move, closing costs, appraisal/equity issues, etc. It is important for a lender to look at all these scenarios in a refinance transaction in order to make sure it is truly beneficial for the client and ultimately puts them in a better position financially.

John Davis
Countrywide
Mortgage Banker
404-461-3794

There were 386 condo and townhome closings in January. This was a decline of 49.0% from the same year ago period. After lags are reported, the percentage decline may be the greatest on record, eclipsing last month’s (December 2007), 32.2% decline.

Single family detached closed 2,401 homes in January. This was a 36.9% decline versus January 2007 and the 18th decline in the past 19 months.

When demand declines prices soon follow. The average price for condos and townhomes was $176,895 in January. This is 6.5% lower than January 2007 and the lowest recorded average price since January 2003. There is a good chance the average will go lower, as the months supply for condos and townhomes is 11.1 for resales and a very high 16.0 for new construction.

The 16.0 months-supply for condo and townhome new construction is only what is currently listed. The actual months-supply is probably much greater, because usually only a “floor plan” is listed. There is currently a 4-year supply of new construction townhomes and condos on the market (mostly condos). The actual supply is probably much higher and the demand may never be there to absorb all of the high-end condos that are built or in the process of being built. Many of the proposed high-end condos have even been put on hold or have been canceled and will not be built.

The average price for single family detached was $246,833 in January. This is the lowest reported monthly average since 2006’s average of $240,844. This is also $44,000 lower than the all-time high for single family detached, which was $285,078 in June 2007.

There were 7,604 expired listings for all single family in January. This is down from last month’s all-time record high, but still 2,200 greater than the same year ago period.

There were 2,925 withdrawn listings for all single family in January versus 2,237 for January 2007.

Tell your buyers they have lower prices and a lot of inventory to choose from. The chart below shows how much more months-supply we have starting 2008 than there was two years ago.

The days-on-market for January single family was 101.8. This is the highest DOM since January 1998’s 108.4.

Third quarter 2006 we started our housing new construction downturn. Third quarter 2007 the entire housing market nose-dived after sub-prime was axed. Now after looking at December 2007 and January 2008’s results it sure looks like we are in a recession. We have had two strikes against us, lets hope we are not in strike three.

Thank you,
Steve Palm
Smart Numbers

As a result of the large inventories of homes, buyer’s being more selective, and negative news media; there is now a buyer’s market and mortgage rates are at historic lows!  Interest rates have dropped the lowest they have been in over 5 years, making this a great time to buy a home.  In addition FHA loans have increased the total loan amount they are offering.  More and more home sellers are helping buyer’s with closing costs in order to help with first time home buyers.

Conclusions:

1. Seller’s that price their homes correctly and in-line with their competition are selling quickly and getting close to their asking price, while over price homes rarely receive any offers.  Most price reductions on overpriced homes result in “chasing the market” in which the house extends it’s time on the market because it is always behind in its price.
2. New Construction - Builders are more flexible on extras and helping with closing costs…some are even offering new cars as incentives!
3. Resale Homes - Sellers should have a market analysis of their home to determine the best price, have their home looking great, and in good repair before putting the home on the market.  They should also be prepared to help with buyer’s closing costs.
4. It is even more important to use a qualified Real Estate Professional now, more than ever.  Buyers can use a Realtor to help narrow down their search, and avoid buying an overpriced home, and Sellers will need Realtor marketing skills and resources to help sell their home.

Rent = $1,200/mo.  The average person takes 30 days to buy.  If you wait 6 months, you will pay your landlord $6,000. 

2)  Rate Change

If today’s rate is 5.5% on a 30 year fixed rate mortgage, assuming a $200,000 sales price with 5% down:  Your payment will be…$1,073 per month…

The following shows what happens to your payment if your rate goes up by the time you buy (in ½% increments)

This number you must look at from the long term picture.  If you wait 6 months to buy a home, it is possible that the rates will be up .5%.  The cost/loss to you IS NOT $60 per month.  The cost is $60 per month times however many months you own the home.  The average American owns a home 7 years, so that loss equals $5,040.  If you keep this home as a rental property (a great idea especially for your first home and when rates are this low) then the loss is times 30 years, or $21,600.  Of course if you look at it like a good financial planner would, your loss is not simply the $21,000 but it’s that amount times the opportunity cost of lost interest had you invested that money yielding 5%-10% appreciation compounded annually.  This of course multiplies the loss to 2 to 3 times the actual cash loss!

3)  Appreciation Lost  (Assuming a $200,000 sales price)

* Metro Atlanta typically appreciates at an average rate of 4%-5% per year.  Atlanta was predicted to appreciate 24% over the next 5 years (CNN.com “Top 10 Places to buy - NOW”)

4)  Tax deduction/interest write off

This is the trickiest of the calculations because everybody’s tax situation is different, and the tax code is a tad bit complicated.  But as a general rule, you can write off 100% of the interest portion of your payment.  And if you didn’t know, the interest portion is MOST of the payment (for the first few years anyway)

For example:  using the examples above, with a $1,073 per month payment ($190k loan @ 5.5%), the interest portion of the first payment is around $850 per month.  So that’s the write off that you will NOT be getting per month until you buy.  Most people buying this price home are in the 28% tax bracket plus 6% state.  That means the actual cash loss is the monthly payment times your tax bracket.  Let’s say 33%.  So in this example, you are losing $280 per month CASH in tax deduction that you are not receiving.  That’s not even taking in to account that writing off $10,200 per year ($850 times 12 months) would probably take you in to a lower tax bracket; consequently, you would pay taxes at a lower rate.  So…your “lack of deduction loss” is approximately, $250-$300 per month.

SUMMARY:  IF YOU WAIT 6 MONTHS TO BUY, YOU ARE LOSING BETWEEN $8,000 AND $15,000 IN THAT TIME ALONE.  IF YOU MISS TODAYS RATE, IT COULD COST ANOTHER $15,000 TO $100,000 MORE OVER THE LONG HAUL.

One Last Point:  Affordability and Lifestyle

I do not recommend ANYONE BUYING A HOME that they can not afford, or that will make them “house-poor”.  I recommend that you should be fairly conservative.  This means add up your PITI (total mortgage payment with taxes and insurance added in) and your payment should NOT be above 30% of your GROSS monthly income (before taxes).

Remember this though:  If you “wait” to buy, that $200,000 home will most likely be $210,000 next year (5% appreciation).  So the question you must ask is, “Is my income going up 5% per year?”  If not then you will be able to afford LESS in a year than you can now.

*  This is not intended as an earnings claim on purchasing rental property.  Past results are not in indication of future performance.  Please consult your tax advisor.  (ask about the W-4 form). 

Single family detached had 3,178 closings for December or a decline of 37% from December 2006. This result is also lower than December’s 1998-2005 results. After lags are reported, Single family detached may exceed 12/2001, three months after 9/11.

Single family detached has declined year-to-year for 16 out of the past 17 months. 

Condos and townhomes closed 579 units in December or a decline of 38.9% over the same year ago period. This is the 10th consecutive monthly year-to-year decline and the 13th decline out of the past 16 periods.

For the year, condos and townhomes were down 12.2% from 2006. Single family detached was down 16.9% 2007
versus 2006. The only other year-to-year decline for single family detached was 2000/1999. That was the year of the NASDAQ collapse and the percentage decline was only 2 tenths of 1 percent. On the other hand, the only year-to-year decline since 1996 for condos and townhomes was 1999/1998 and that was only 8 tenths of 1 percent.

Total single family was down 16.2% for the entire year, 2007 versus 2006. Since 1996 there has never been a reported year-year decline for all single family housing, until 2007.

The very weak demand for housing during 2007 really showed up in the pricing trends for December. The average sale price in December for single family detached was $250,910 or a decline of 3.5% from December 2006. Since 1994, this is the greatest year-to-year monthly negative change in average price. There have been only 5 negative changes in year-to-year monthly average price declines in the past 13 years and two of them have been in the past three months.

The average price for condos and townhomes was $186,034 in December. This was a 7.8% decline from December
2006 and the lowest reported average price since July 2006.

Single family detached had 8,128 expired listings in December, easily a new monthly record, surpassing September 2007’s 6,561.

There were 1,656 expired listings for condos & townhomes in December and a new monthly record, easily surpassing December 2006’s 1,311 expired listings. For all single family there were 76,140 expired listings in 2007 or almost 20,000 more than 2006.

Days-on-market for all single family was 88.1 for 2007. This is the highest recorded yearly DOM since 1994.

Well, we are through with December and 2007! Now we are in 2008 and we need more interest rate cuts and to stay out of recession. However, it may be too late. Hopefully recent and future actions by the government can stave off any economic downturn.

However, what a GREAT time to buy a home in 2008, as lower interest rates are coming, prices are coming down, and it is an entertaining election year! What a FANTASTIC time to buy a home!

Thank you,

Steve Palm
Smart Numbers
© 2007 Smart Numbers

CNBC personality, best-selling author and stock guru Jim Cramer on Mad Money Jan. 30, 2008, following the Fed’s decision to cut their benchmark rate an additional 1/2 point at today’s scheduled meeting:

Mini Bio: Harvard law grad, journalist, hedge fund manager/owner, long-time Wall Street commentator.

This is where and when you make the money. The banking apocalypse is coming to an end. I am so confident that right now I feel like purchasing perhaps the most loathed and toxic investment around. I feel like purchasing an asset now synonymous with destruction of value. With this rate cut I think I’m going to go buy a house. You heard me (A HOUSE!)

And now I think you can probably find some darn good buys among houses. With this additional 50 pt basis cut, I think Bernanke has made a turnaround in housing INEVITABLE!

The bottom line: I believe the Fed has given you a once in a decade opportunity to make big money right now. Frankly in stocks and in 6 months in homes. Do NOT be scared away.

Boo-Yah! I don’t care how (in)sane he is, that’s good news to my ears. Mortgage rates will eventual partially catch up to these cuts and the housing industry will survive. Hang in there folks!

This move by the FED temporarily sent mortgage rates to their lowest point since 2003 but as was predicted in last week’s Market Watch, this did not last very long as mortgage rates shot up close to .375% in rate within the next 48 hours only to finish the week almost unchanged from the week before.

So, the FED cuts by .74% and mortgage rates were virtually unchanged but the ride was certainly interesting. Mortgage rates recovered late in the week on the announcement that the President’s stimulus package included the possibility of raising the FNMA/FHLMC limits as well as FHA limits. FNMA/FHLMC limits could be raised up to as high as $729,150 and FHA limits could also soar close to that level. this raise in limits will most likely give a boost to the crippled mortgage industry as much needed “liquidity” will be reintroduced back into the market. The combination of rates breaching below 5% and increased lending limits will certainly boost mortgage originations.

This week’s calendar will give us another opportunity to ride the “roller coaster” starting with the FED’s decision on Wednesday afternoon. A .25% cut will most likely push rates lower and the DOW will likely take yet another hit. However, a .50% cut will actually help the DOW and push rates slightly higher before they once again move lower. After we survive Wednesday’s news, this Friday brings us another round of employment data. The market is only looking for a 70K increase in non farm payrolls and for the unemployment rate to remain unchanged…numbers below expectations will move rates marginally lower.

From Nov. 1978 to Nov. 1990, they were double digit nearly every month - including the high of 18.45 (eighteen!) in October of 1981.

Today’s sweet spot on a 30 yr fixed ($175,001, 95 LTV, primary purchase, 680 credit) we are at 5.50 at par with 1% orig. Last week we had a couple days at 5.375%. Who’s ready to LOCK? And quick, before the loan program guidelines change!

NOW is a good time to buy a home, indeed, as we really are at historical lows. I believe it was Jeff Adams that put it: What are you waiting for…rates and prices to go UP?