John Heath & Your Results Team’s Local Housing Market Update – 2^nd Qtr ’08

The first thing to understand is that real estate and housing trends must be looked at on a local level.  Despite the national media’s ongoing attempt to report on the state of the “housing market”, there is no national housing market.  The value of real estate in general and for the purposes of this article, single family detached housing specifically, is driven by the very basic economic principals of supply and demand.  In this report we will look at values and trends in the Forsyth, Dawson and North Fulton real estate markets and examine factors affecting near term trends in this area. The following statistical analysis is provided based on data reported by FirstMLS, the primary listing service used by Realtors and Brokers in our market.   If you want to learn more about what is going on in and around your neighborhood, please visit www.NorthGaHomeSales.com to view more specific data online and/or to register to receive FREE email updates on homes selling in your area. 

 Just the Facts:  Currently North is still experiencing a Strong Buyers Market.         YTD through June 2008, 2,582 homes have been sold in the combined market area of Forsyth County, Dawson County and North Futon, a reduction in sales volume of over 33% from the same 6 month period (January-June) last year. During the 12 month period July ’07 – June ’08, 5,711 single family detached homes were sold, down nearly 27% from the same period a year ago. While sales volumes are down, listing inventories have remained fairly stable over the last 12 months, up only 4% over a year ago at around 6,000 homes currently listed for sale in the combined market area.  Given the average sales volume over the last 6 months, this represents about a 13 month supply of homes (MOI) for the area overall with Dawson County having nearly double the MOI of Forsyth and North Fulton.  Please see chart below for break downs by area.

County	Sold YTD (6mos.)	Sold 12 mos.	Active Listings	Months of Inventory
	June ' 08	July ' 07 - June ' 08	August ' 08
Forsyth	1,243 (-31.74%)	2,749 (-24.22%)	2,763 (+ 1%)	12.5
North Fulton	1,215 (-34.32%)	2,716 (-28.41%)	2,687 (+ 9.18%)	12
Dawson	124 (-34.74%)	266 (-35.59%)	504 (+ 1.5%)	22.2
Combined	2,582 (-33.13%)	5,711 (-26.86%)	5,954 (+ 4.25%)	12.7

The majority of sales continue to come from homes priced under $500,000, with this price point comprising over 80% of overall home sales in our area. While there are fewer homes for sale as we go up in price, the lower volume of sales in the higher price ranges results in an even stronger buyers market with current inventory levels at over 4 years for homes priced over $1 million. Please see the chart below for a more detailed breakdown of listings and sales by price range for the combined North Fulton, Forsyth and Dawson market area.

Price Range	Number (%) Listed	% of Overall Sales	Current MOI
$0 - $300,000	1,903 (32%)	0.4701	9.19
$300,001- $500,000	1,879 (31.5%)	0.3316	12.87
$500,001- $750,000	1,192 (20 %)	0.1347	20.09
$750,001- $1,000,000	511 (8.5 %)	0.0424	27.28
$1,000,000 +	465 (8 %)	0.0212	49.82

The Good News: Despite the gloom and doom reported by our national media, home prices have remained stable nationally over the last four quarters and have actually risen by 2.2% in Georgia over the last year, according to the latest numbers from the Office of Federal Housing Enterprise Oversight’s (OFHEO) Home Price Index (HPI)*. 

Additionally, the most recent Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed, rose 5.3 percent nationally to 89.0 in June from a downwardly revised reading of 84.5 in May with the South showing the largest jump of 9.3 percent to 92.4. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales. Lawrence Yun, chief economist for the National Assocation of Realtors (NAR), said “vacillation of data from one month to the next indicates a housing market in transition”. “The rise in pending home sales was broad-based with all four regions showing gains. This is welcome news because a rise in contract activity is necessary for an overall housing recovery.”

After months of political bureaucracy, the Housing Rescue Bill has been signed into law.  The bill, which will be implemented on October 1^st, is being regarded as the most significant housing legislation in over a decade.  Significant provisions in the bill include, increasing the GSE conforming loan limits from $417,000 to as much as $625,500 in high costs areas (115% of the local area median home price). These higher loan limits will make it easier for borrowers to get mortgages, because conforming loans are more likely to be purchased in the secondary market. The bill also authorizes the Treasury Department to give Fannie & Freddie an “unlimited” line of credit.

FHA loan limits will also be increased from 95% to 115% of area median home price with a cap of $625,500.   The bill also attempts to encourage first time home buyers to enter the market by offering a refundable tax credit that is equivalent to an interest-free loan equal to 10 percent of the purchase price of the home, up to $7,500. The provision applies to homes purchased on or after April 9, 2008 and before July 1, 2009.  Purchases made in 2009 can be treated as if they occurred in 2008. The credit phases out for taxpayers with modified adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return).

While these steps should be helpful in stabilizing the mortgage market, the bill also includes some provisions that could, in my opinion, actually hurt the housing market.  The prime area of concern is that effective October 1^st the current bill eliminates the down payment assistance program on FHA loans and increases the FHA down payment requirement from 3% to 3.5%.  The FHA's own estimates show that down payment assisted loans comprise nearly 40% of all current FHA loans. This means that in the next year alone, more than 300,000 working class families could find it difficult to enter the housing market.

 
The Bad News:  Over the last few years Georgia has consistently ranked in the top 10 nationally in foreclosure rates and there is no doubt that defaults coupled with slower home sales are going to result in continued high levels of foreclosures.  Higher foreclosure rates result in downward pressure on home prices and tighter lending requirements.  Unfortunately with this being a Presidential election year, our “unbiased” national media are not likely to let up on their doom and gloom economic projections until after November which will continue to weaken consumer confidence and keep many prospective home buyers on the side lines.

Like the Consumer Price Index, the recently released Producer Price Index (PPI) advanced much more than economists had expected. The PPI rose 1.2 percent in July, following a 1.8 percent increase in June. The 0.7 percent increase in finished goods other than energy and food (which are considered separately because of their volatility) indicates that price increases are widespread. The PPI has risen 9.8% from July 2007 to July 2008 after rising 9.1% from June 2007 to June 2008 making these two 12-month periods the most inflationary since July 1981-towards the end of the great 1970s inflation.

Going Forward: In other recent economic developments, Gross Domestic Product (GDP) rose at a 1.9 percent rate in the second quarter, up from nine tenths of one percent in the first quarter and is expected to be at @ 1.7 percent for 2008 and 1.5 percent in 2009. Positive GDP numbers continue to indicate that despite the media’s frantic efforts to paint as bleak a picture as possible during this election year, the economy has not and should not enter into a recession.

The 30-year fixed-rate mortgage recently dropped to 6.46 percent for 30 year fixed rate loans and below the 6 percent mark for 15 year loans according to the Mortgage Bankers Association of America.  Rates are likely to trend up to 6.5 percent by the end of 2008, and then hold at that level for most of next year according to forecast by the National Association of Relators. NAR’s housing affordability index is forecast to remain favorable this year, averaging 13 percentage points higher than in 2007.

The main negatives at work at the moment are the rising unemployment rate and concerns about inflation.  While the unemployment rate now stands at @ 5.7 percent, the Labor Department did revise its employment numbers upward by 26,000 for the prior two months. As a result, according to forecast economist Dr. Orawin Velz of the Mortgage Bankers Association, "the decline in employment in the past two months is less severe than originally reported."  Inflation, as measured by the Consumer Price Index, is seen at 4.1 percent in 2008 and 2.6 percent next year. Inflation-adjusted disposable personal income is estimated to grow 1.7 percent this year and 1.1 percent in 2009.

One small advantage of the US dollar weakening in comparison to some foreign currencies during the first two quarters of this year is that international real estate purchases are increasing across the nation. NAR estimates that between 150,000 and 190,000 homes were sold to foreign nationals from May 2007 to May 2008, with the most popular states being Florida, California and Texas.

Single family housing permits declined 5.2% from June to July, and single family housing starts were at a rate of 641,000 which is a slight decline from June's rate of 660,000. Single family housing starts are now at a level last seen in 1982 and will continue to put a damper on GDP growth.

Continued slowing in housing permits and starts, while not great for GDP growth, is a good thing for home owners because it helps to curtail the supply of houses for sale. Supply that is reduced by building cutbacks and demand that is stimulated by the first-time homebuyer tax credit will help prices stabilize and eventually foster more sales.

With hopefully 2.5 million first-time home buyers taking advantage of the temporary tax credit, existing-home sales are likely to rise 7.0 percent to 5.51 million in 2009 from an expected total of 5.15 million this year according to NAR. “Rising commodity prices and higher construction costs have resulted in a very unusual market today with existing-home prices being less than replacement building costs in some areas. According to the most recent projections by Lawrence Yun, National Association of Realtors (NAR) chief economist, home prices are projected to increase nationally an average of 3 to 6 percent in 2009.”

The net is, interest rates are still very favorable, remains a very desirable place to live and with the current buyers market in our area, this is a great time to purchase a home in North Georgia. If you hire a professional Realtor to assist you with your search and the negotiation process, you should be able to start out with positive equity on your purchase.  If you need to both sell and buy right now, homes priced correctly and marketed properly especially in the lower price ranges are still selling in an average of 90-100 days and typically at @ 95% of list price. So by pricing correctly on the sale and negotiating properly on the buy you should experience a net gain in wealth on the combined deal and still make your move within a reasonable time period.

This report has been provided courtesy of John Heath & “Your Results Team”, your North Georgia real estate experts.  John and his team are widely recognized as one of the top selling teams in Georgia and the preeminent experts on the residential housing market in Forsyth, Dawson and North Fulton counties.  Learn more online @ www.NorthGaHomeFinder.com.

* The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales of the same properties. This information is obtained by reviewing repeat mortgage transactions on single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac since January 1975.  Unlike the limited 20 city Case-Schiller Index, typically used by the media to report housing trends, the HPI includes house price figures for the nine Census Bureau divisions, all 50 states and the District of Columbia, and for Metropolitan Statistical Areas (MSAs) and Divisions.  The HPI serves as a timely, accurate indicator of house price trends at various geographic levels.  Because of the breadth of the sample, it provides more information than is available in other house price indexes.