In the cyclical world of the residential real estate market, spring is traditionally the highest sales volume season of the year.
As spring has drawn to a close and the first days of summer are upon us, analyzing year-to-date data and specifically home sales statistics for the month of May can help us take the temperature of the market thus far in 2012.
National headlines have continued to be daunting for the last 12 months when they comment on residential real estate. A handful of sources have even singled out Atlanta in referencing larger than average price declines as recently as last month. However, if you poll local real estate professionals in our market, the average message is not the same.
Analyzing closed home sales from the First Multiple Listing Service’s database for the 28 counties that define metro Atlanta confirms local sentiment. According to FMLS, the median price of homes in metro Atlanta increased 6.2 percent year-over-year for the month of May. While that number is positive, median prices can increase for a variety of reasons, some potentially meaningless.
In my opinion, the more consequential numbers are the comparison of active listings, closed sales and pending sales year-over-year. In May of 2011, there were roughly 58,000 homes for sale in metro Atlanta versus roughly 31,900 active listings in May of 2012. This constituted a drop in inventory of 45 percent in the 28-county area.
Additionally, the number of closed sales in May 2012 increased 5.4 percent and the number of pending sales increased almost 32 percent versus the previous May. Also notable as a forecasting tool is that the number of pending sales in May was 32 percent greater than the number of closed sales.
These data points indicate that not only are the supply and demand curves closing the gap and moving toward each other, but also that the number of closed sales should continue to increase in coming months.
Metro Atlanta’s monthly supply of inventory is the lowest it has been since the recession began. It dropped from 19 months of inventory in May 2010 to 10.6 months of inventory in May 2011, and now stands at only 3.7 months of inventory, an 80 percent drop since 2010.
The recovery of the housing market is undeniably a crucial factor for the economy as a whole, and the numbers above are encouraging, but I feel compelled to mention one area of difficulty in our market.
It has taken the better part of the last four years for the majority of sellers to realistically understand the value of their home in the current market. Today’s hurdle in many cases is the unrealistic view of many homeowners with regard to the timeline for market recovery. No longer does the conversation begin with, “In 2006, my home was worth …” Now it begins with, “In the next year or two, I think I can sell my home for more than I can today.”
As meaningless as the conversation of the past home value was for today’s market, so is the latter conversation about the future unfounded in today’s economy.
There are no economic markers currently indicating that home values will increase in the next several years more than the cost to carry them. Also, any homeowner who thinks renting his or her house until prices recover is the best alternative needs to be very careful in his or her analysis and consider his or her full carrying costs including property taxes, solid waste taxes (if applicable), insurance, and maintenance costs in and outdoors, in addition to mortgage expense.
Frequently, when all expenses are tallied, the homeowner does not truly break even on the rental, or if they do, then the wear and tear that property incurs from the tenant costs the homeowner more than the profit they captured on the lease.
Furthermore, if home prices were to increase, and they did so at the historic norm of the last 40 years of 2 percent per year, then it would take 10 to 15 years before values reached pre-recession prices.
With interest rates at historic lows and home prices the lowest they have been in almost a decade, now is arguably one of the best times in our market’s history for a qualified buyer to purchase a home.
It is my humble opinion that if a homeowner thinks that he or she may want or need to sell their home in the next several years, then the time to do it is also now. With all of these factors converging, I have joined the growing pool of real estate professionals in the metro Atlanta area who have a feeling of guarded optimism; optimism for the local real estate market for the duration of 2012 and optimism that the sector that led our economy into the recession may be beginning to lead us toward a broader recovery.
Rogers is president and owner of Dorsey Alston, Realtors, an Atlanta-based residential real estate firm founded in 1947.