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Foreclosures and Their Effect on the Intown Atlanta market

It’s March 2009. I’m tired of talking about foreclosures, but a new wave is coming. Are the banks and the Federal Reserve ready?

I have to believe that the days of the “bad commercial paper” and the combined sale of hundreds of mortgages as one convenient, supposedly “steady as she goes” investment vehicle are over. See my February 2008 article for a clear explanation – The Sub-Prime Mortgage Crisis Explained in Stickfigures.

I do know that Alt-A is the new Sub-Prime, and I thank investment scholar and all around smart, conservative guy, John Mauldin for helping me to know more about the details of bad mortgages, the ailing macroeconomy, the paper tiger in China, and the return of the Dark Ages to Western Europe…and lots of other details that do not make the mainstream media as often as they should.

John is a straightforward advisor and his free newsletters are packed with smart information, every week

That’s right, John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free “Thoughts From the Frontline” that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter click here, or cut and paste this address:

Foreclosures, no matter how small a percentage of total sales, no matter how small a percentage of total outstanding mortgage debt, no matter how they could be trivialized as just single pieces of paper … foreclosures are to junk bonds as a deadly poison is to a snake bite.

This is difficult but I shall try to “…accentuate the positive, eliminate the negative, latch on to the affirmative and not mess with Mr. In Between…” so, lets get our Intown Atlanta and Decatur real estate on with a look at segmenting foreclosure sales by price range.

Lets look at just the months of October, November and December.

The chart below shows that although sales decreases occurred in most of the price ranges, the lowest range (<$200K) actually had an increase in foreclosure sales of +36%. That’s a somewhat stabilizing effect. We just need more buyers, because the imbalance between supply and demand is still quite high.

Now, when you look at foreclosures as a percentage of sales by each quarter of the year in 2008, foreclosures represented an increasing portion of total sales. Foreclosures represent an increasing portion of total Intown Atlanta and Decatur sales when you look at reports after June 2007.

In the most recent reports available, the percentage of sales that were foreclosed properties in 4Q 2008 was nearly double the percentage in 4Q 2007, rising to 27.6% of all transactions

Segmenting sales by price range shows that although sales decreases occurred in most of the price ranges, the lowest range (<$200K) actually had an increase in sales of +36%.

However, sales of foreclosed properties were strongest in the lower price ranges.

With a look at one more chart, we see that sales were down by -12% through the full-year 2008, compared to 2007. The slowing began in 2Q 2007 and has continued lower in each quarter, compared to the previous year, since then.

Foreclosures may be a terrific opportunity for some buyers, but for many, not so much. There is plenty of available inventory from stable sellers, even some in short sale positions at market prices, that are not so stable. In the lower price ranges, the quality and condition of foreclosed properties can be a true detriment to their “purchase-ability.”

Quite often, many lenders are not equipping their buyer clients with the right loan for financing the purchase of foreclosure opportunities. Quite often, no loan exists for these type of purchases.

Check out what’s happening under $100,000, and ye shall see…

In summary, the glut of foreclosure inventory will be with us in Intown Atlanta and Decatur for a few more years, and we will stabilize quicker than the suburbs  – that’s my prediction.

Look for sales activity to speed up as buyers begin to realize that the time is now and that the gravitional pull of foreclosures has brought the 2009 “first-time” and “move-up” buyers of primary residences in Intown Atlanta and Decatur, their finest investment opportunity in decades.

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