One of the questions many investors ask me is “Is it too late to buy in Atlanta because the prices have gone up so fast?”
While the prices have gone up and I suspect they will go up again this year, in my opinion it is not too late for a multitude of reasons. Some people even have fear that we are in another bubble, which is understandable with all the pain and carnage we just experienced. But an educated investor can look beyond the fear and realize an opportunity.
Here is how I analyze where we are in the real estate cycle. First, when we were in the last bubble, it wasn’t the lack of buyers that caused the bust, rather it was the lack of financing. People still wanted the homes, but the means to buy them changed. So, if we look at where we are at now, banks are not tightening the lending belt but actually are loosening it. This will allow more buyers to enter the market as both homeowners and investors.
The affordability of homes in the last bubble was the lowest affordability in nearly 30 years and now we are at the lowest affordability in the last 20 years. So, this means that it costs less to buy with the price of home and the cost of the money in the last 20 years. New home building has pretty much been on hold now for nearly 6 years and so the inventory of new homes is less than the demand.
Banks are not foreclosing as aggressively as they have in the past and are actually selling the defaulted notes to the institutional buyers rather than foreclose. The institutional buyers are then negotiating with the defaulted homeowners to keep them in the home in some form or fashion. In addition, these same institutional buyers are buying directly from the banks before the homes make it to market. So, nearly every market has seen a significant shortage of inventory.
This lack of inventory with the demand is doing what is normal, it is pushing prices up. This is a good thing since many owners who didn’t have an option out of their home except foreclosure can now go out on the market as a normal sale. People are still talking about the shadow inventory, but we really don’t have to fear a dump of inventory any time soon. If there is a change of REO’s being released to the market, it will be 9 – 12 months before they actually make it to the marketplace so this can be followed.
Lastly, if you look at the cost to rebuild a home in the Atlanta market, you will find that we are still buying well below the rebuild costs. This is one of the strongest indicators to me that the homes in Atlanta are still a great value. If you have any other questions or concerns regarding this, write me an email (firstname.lastname@example.org) and let me hear from you. Don’t wait too long to make a decision to invest, as I mentioned in the beginning of this segment, I expect prices will go up again and some point the bargain rack of Atlanta will back to normal pricing!