Foreclosures, fear and North Metro Atlanta

Atlanta Foreclosure & Real Estate News

By Hatcher Hurd

So far, the recession in North Metro has not created a domino-like chain of layoffs, certainly nothing like the case when the dot.coms were folding. Yet there is still general unease about this recession.

The 9/11 recession was barely felt in north metro Atlanta, largely because the housing market was so strong, it built right through it. This time it is different. The housing market decline is driving this recession instead of being "a bystander," and people are worried.

Nothing strikes fear into the residents of North Metro like the statement, "Property values will be affected," and in this recession fueled by the mortgage crisis in this country, it is more a prophecy than a fear.

For weeks, the news about foreclosures has only gotten worse. The Atlanta Business Chronicle reported the Atlanta metro area was 11th in foreclosures nationally for 2007. Experts say it will be worse in 2008 before it gets better.

There were 10,000 foreclosures in Georgia in January alone, said David Cook, president of Equity Depot, an Alpharetta-based company that tracks real estate information.

"The increase is from developers," Cook said. "There is a 30 percent increase in new construction defaults. This will continue to trend upward."

Developers and their lenders have been holding off, hoping the real estate market will begin to turn, but now the lenders are releasing defaults, which means more REOs (real state owned) for the banks. That is bad for banks, since they are in the lending business and not the real estate business. With their capital tied up in REOs, they have no money to lend.

What the metro region has been spared is the overheated markets of Florida, Las Vegas, San Diego and others which were fueled by real estate investors and speculators. In Miami, real estate values were increasing at a rate of up to 30 percent a year.

"We saw appreciation of 5 percent and 6 percent a year, which is pretty good the last few years, but it wasn't off the chart like some places. And it is those places that are really hurting," said D.C. Aiken, vice president of Countrywide Loans for the Atlanta market.

So what should you do if you are thinking about buying a new house or selling the one you have? The first thing is to remember it is a different real estate world out there than the one that everyone bought into.

If you are thinking of buying a house, just remember the way mortgages are written today is radically different from even six months ago. Everyone knows the subprime mortgage – where buyers could defer most or all of the interest for several years – are out, said Aiken

"Six months ago, if you could fog a mirror, you could get a loan for no money down. Those days are gone," Aiken said.

The balloon broke when subprime loans were made to people with less than good credit who did not have the income to sustain the loans and were depending on excellent appreciation to get refinanced out of bad loans.

Banks and mortgage companies are going back to basics, requiring down payments, good if not great credit scores and the income to make the payments.

But it is still a great market to buy into, Aiken says.

"If last year you were looking at a $400,000 house and rates were 6.75 percent, and now you can get the same house at $380,000 or $370,000 at a 5.5 percent mortgage – that's got to be a good deal. You are buying for less and paying less on your mortgage. It should be a great deal now," Aiken said.

Selling your home is going to be harder, and expectations for price will have to be lowered. That is where the market is suffering. Home values are down because of a glut on the market. A robust three-month to four-month inventory now has bloated to as much a 10 months.

Where people could expect a home to sell in as little as 30 days is not going to happen now. And comparable prices of home sales six months ago just don't apply now. The good news is that the north metro prices are not falling in double digits, 5 percent is more likely.

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