Boom or Bust for Atlanta Real Estate in 2021?

Video link referenced in this video on the national real estate market is right here: https://www.youtube.com/watch?v=Jhe4a7aQPzE

Full Transcript From Video:

Hey everyone, it’s Ryan Ward with Premier Atlanta Real Estate and today I’m going to answer the question of whether now is a good time to buy real estate, sell real estate, or both, here in Atlanta. It’s certainly unusual circumstances in the market and that’s led to some people making predictions based on anecdote and fear and these are never good methods to make a decision. Watch through and find out for yourself what I think is the right move in the Atlanta real estate market now.

Georgia was the first state to reopen after the shutdown in April 2020 and the real estate market in Metro Atlanta reaped huge benefits as a result. In my last video, I shared my thoughts on why I don’t think it’s possible to see a national housing crash in 2021, and today we are going to look closely at Metro Atlanta. If you haven’t seen that video, you can check it out here. Nationally demand for homes rose about 1% in 2020 while, in Atlanta, demand was up 5% over 2019. That’s a lot more than the national average! So, is this a housing bubble in the Atlanta real estate market? Can we absorb increased inventory - if and when foreclosures and forbearance problems hit the market? Will that even happen in 2021? And, the biggest question of course - is now a good time to buy or sell a home?

We were fortunate to have a phenomenal real estate market in Atlanta during 2020 that otherwise saw some economic sectors get completely demolished. It’s been difficult to watch the retail, restaurant, and music industries hurt so bad and hopefully, the vaccine will help revitalize these important parts of our economy and our culture. It’s critical that it happens. Let’s jump right in and answer the question of whether now is the right time to list or buy a home in Atlanta or if we need to worry that foreclosures will hurt or even crash the Atlanta real estate market. The most common concern I’ve heard and read is that the millions of people who elected forbearance won’t be able to get caught up on their payments and it’s going to cause a massive wave of foreclosures. I certainly understand the concern especially since there are so many more homeowners in forbearance than during more normal times. Since this seems to be the biggest cause for concern, let’s try to understand it better. Freddie Mac did the best study I can find on forbearance during COVID and found from historical forbearances, that the higher your monthly payments, the higher your loan to value, or the lower your credit score, the more likely you were to default. It just so happens that right now, forbearances due to COVID match closely to a recent time of increased forbearance during the storm season of 2017 but the number of forbearances is lower than in 2017 as the loan to values increase suggesting there may be fewer foreclosures as a percentage of loans currently in forbearance than at that time. While the study can’t predict the future, it does provides a great deal of insight as to who is in forbearance and what is likely to happen based on real world past examples.

In my opinion, the most telling statistic is that, according to the Mortgage Bankers Association, 32% of homeowners who are in forbearance right now are actually still on time with their payments. Right off the bat, 32% of borrowers in forbearance are almost off the table as potential foreclosures. That’s almost shocking and great news at the same time! Also, there is a Federal foreclosure moratorium for Freddie Mac and Fannie Mae loans through January 2021 and the moratorium runs through February for FHA loans. There is a possibility that one or both will be extended even further depending on how the market is holding up. So let’s review, how the foreclosure process works in Georgia because a “wave of them” isn’t going to happen in 2021 no matter what anyone tries to tell you.

So, Georgia is a non-judicial foreclosure state which means lenders don’t need to go to court first to begin the process of foreclosure. This means in Georgia, foreclosures happen faster than in some other states so if foreclosures are coming, we will see them here before many other places around the country. A foreclosure starts with a default on payments of a minimum of 2 months typically before a lender will start with a notice of intent to foreclose. Law requires notice to be given at least 30 days before the foreclosure sale. There are lots of other steps involved but we are just looking at time since that’s the biggest concern. This means we are at least 2-3 months out before the foreclosure sale can even happen at the courthouse. At that point, the home will either get auctioned and purchased at the courthouse or go back to the bank. As a side note here, it never hits the “market” if it gets purchased at the courthouse. Now, if the home doesn’t sell at auction, it goes back to the bank and to an asset management department. Then it gets evaluated, priced, inspected and sits around in a file on a desk of an asset manager who has way too much work to process these things quickly. You’re looking at 6 months at least before they hit the market after the 3 months at the beginning in a fastest case scenario in a time of more normal amounts of foreclosures. It’s more likely going to take a year or more if banks start needing to foreclose in large numbers.

This timeline means that there is no real way for foreclosures to affect the market in 2021 since they won’t even enter until the very end of the year at the earliest. By then, everyone will have the vaccine, all business will be reopened and as Americans, we will be getting back to life as we knew it before COVID which means the economy will be operating on all cylinders for the first time in a while. Remember, we’re also in a market with supply that is so low that it’s the low supply that’s the actual housing crisis. Another thing to consider...before the government and lenders let these homes go to foreclosure, there will be a full effort made to set up repayment plans and allow for loan modifications before we start getting into massive numbers of defaults which will take even more of these homes out of potential foreclosure status. Please understand that banks don’t want to foreclose on homes. It isn’t their business model. As we’ve already seen, 32% of homeowners aren’t even late, other people will figure out how to get caught up, others will sell at market prices or otherwise solve this problem because most homeowners have enough equity to sell, unlike in the real housing crash in 2007. This doesn’t leave enough foreclosures to crash the real estate market in Atlanta.

Here’s why. Everything about the real estate market starts and ends with supply and demand. We saw that demand in Atlanta outpaced the national average with 5% year over year increase in the number of sales. A significant reason is that Atlanta has been one of the top 5 fastest growing cities in the country for the last 5 years for net migration according to the Atlanta Chamber of Commerce. If everything else stays the same, we actually need to sell even more homes just to keep up with growth. Another reason demand will stay high in 2021 is that we know interest rates are going to remain low. The Fed has already told us this and they’ve even indicated that they are likely to stay low beyond 2021. These two reasons alone should ensure that demand stays high and there is nothing on the horizon to change it. Now to supply - if there is a housing crisis, it’s this -supply is too low. In my opinion it’s at an unhealthy low and it would actually be a relief to the market if we could see more supply. As an example, an agent on my team representing a buyer just made an offer on a home, in January of 2021, in the Cumming area on the north side of Atlanta and that home had over 80 showings and 25 offers in 3 days. Consider for a moment how low supply is if there were 25 people who wanted that house and couldn’t get it. This is a story that plays out all across Atlanta and at all price points. Last year we had multiple offers on 2 properties over a million dollars, every home we listed after the shutdown that sold in 2020 had more than one offer and this chart shows you exactly what I mean when I say inventory is too low. It would be impossible for inventory to rise to levels that would cause prices to fall when we see what demand is likely to be and how low the supply is currently.

Look, if demand was cut in half and supply tripled, we still wouldn’t be in a buyers market in Atlanta. We have about a one month supply at the time of this recording. So, should you buy a home right now? If you want to buy before prices get higher, if you want to buy while interest rates are low and your buying leverage is high and you can find a home you like, yes, in my opinion, you should buy right now. At the end of the day, none of us know exactly what the future will bring and we do know what is happening, right now. In the current environment, now is as good a time to buy as there has ever been. So, should you sell? Well, if what I am saying here holds to be true, waiting may cause your home to be worth more in the future so maybe you should wait and hold out for a higher sales price, except...the house you will be purchasing later is also going to cost you more! Why wait on any sort of uncertain future outcomes when you know what an amazing time it is right now to sell your home due to low inventory levels and how incentivized buyers are due to low interest rates? I understand, it’s rare to be able to answer the question of “how’s the market” with an answer of “great” that applies to both buyers and sellers simultaneously, but if you are in the Metro Atlanta market including the suburbs, now is the time to buy and sell. At some point in the future, one side will not have the leverage it has right now. Some of you will wait while others will capitalize. Which side of the decision will you be on? Finally, if you have enjoyed this video, please make sure to subscribe and hit the bell icon to get notified when I upload new videos to my channel. Thanks for watching and I’ll see you soon!