What the Latest Home Prices Mean to You

Whether you’re a buyer, seller, or owner of a home right now, there are data published every month that give a lot of insight into the latest trends in home prices.  This index is called the “S&P Case-Schiller Home Price Index.”  It works a lot like the Dow Jones Industrial average that gets shown on every news show every day.  Basically,  over time it shows how much value is lost or gained for particular real estate markets.  First I’ll start off with an overall view of what has happened, then I’ll provide some of my insights into how it affects you - whether you’re looking for a house, thinking about selling your house, or just interested to know what your home is worth.

The most relevant area to my readers is, of course, the Atlanta market.  There’s good news and bad news in the latest data for us metro-area dwellers.  Here’s a chart to scare you, for starters:

Home prices started declining back in June of 2006.  At first it was a slow pace that actually appeared to be ending in February of 2007, but as we all know, things have gotten much, much worse since then.  The rapid decline in the Atlanta market started prior to the more general Wall Street meltdown, picked up in earnest June of 2008, and flat out fell of a cliff in September of 2008. 

The most recent monthly numbers have finally started to show that the decline is slowing down or “flattening out”.  Believe it or not, that’s very good news.  The market has been declining so rapidly since September that just a slow down in the decline is good news.  After averaging well over a 2% fall per month for the prior 5 months, March’s decline was “only” 1.45%.  Yes, that means it’s a good thing that home prices declined from April to March by 1.45%.  I am having trouble stomaching that statement myself. 

So just how does Atlanta metro area compare to other markets?  It turns out, we’re better off than the majority of the other 20 tracked metro areas.  On a month-to-month basis, Atlanta ranked 8th best with the 1.45% decline.  To put it in perspective a bit, Charlotte was the best performing market with a small .05% decline while Minneapolis and Detroit topped the worst of the worst with declines of 5.41% and 4.64%, respectively. 

On a Year-to-Year basis, Atlanta was again 8th best with a total decline of 15.69%.  The worst performing city was Phoenix with almost a 36% decline.  From a historical basis, Atlanta has never seen these types of declines, but at least we’re not Phoenix.  Below is a chart showing the total declines ranked highest to lowest.  In case you can’t see the city names, they are from left to right:  Phoenix, Las Vegas, San Francisco, Miami, Detroit, Minneapolis, Tampa, Los Angeles, San Diego, Washington, Seattle, Atlanta, Portland, New York, Charlotte, Cleveland, Boston, Dallas, Denver. 

Now for the important part:  What does this mean for the most readers?

If you bought a home in the last 5 years and just want to know what it’s worth in the Atlanta area, you’re kidding yourself if you think it’s worth what you paid.  There are very few instances where people were actually smart enough to buy far enough below market price to make up for the overall decline.  Of course the more recently you’ve bought, the better off you are.  In real terms- I bought a foreclosure in August of 2006 for  $115,000.  That home would appraise now at about $95,000.  I’m underwater, and I bought a foreclosure.

If you’re looking to sell your home, you need to be realistic.  You’re competing with banks who are selling brand new homes often at no more than 85% of the current appraised value.  This means, unless you have to move, you probably shouldn’t even try.  If you put a decent amount of money down and have owned your home for a long time, your home is worth approximately what it was worth at the beginning of 2001.  That’s right.  It hasn’t appreciated for over 8 years unless you’ve made some major improvements or your location is much better than it used to be.

Buyers, everyone else envies you.  You are still in the ultimate drivers seat with any home you’re interested in purchasing.  You can demand anything you want, provided you have access to financing (which is getting much easier than back in September).  You’re also lucky enough to get an $8,000 tax break from the government in addition to the interest credit and homestead exemption that all homeowners can get. 

I am asked pretty often, “Should I buy or wait for prices to come down?”  My answer has changed relative to current conditions, but some basic rules for the average buyer always apply.  First, only buy a house if you plan on living in that place for an extended period of time.  The bottom line is if you think you might have to get out of the house in a hurry or sell in relatively short time span, you’re going to lose money on the sale after commission and other expenses are paid.  My second rule is, save up enough to put a good down payment on the house.  This way, if you do have to move for any reason, you can get out with the only loss being on the down payment.  You won’t ruin your credit with a foreclosure or a short sale.  Finally, be unbelievably patient in finding the exact house you want.  This is as true today as it should have been back in 2004.  People, including myself, get excited and tend to act too quickly when making this kind of purchase.  Take your time.  Know what you want.  Get your demands fulfilled.  Or, move on to the next house.  Overall, if you forced me to tell you if now is a good time to buy, I would say it absolutely is, unless you’re trying to make a killing.

This brings me to my final point in this post.  There are plenty of great deals out there right now.  One house in my neighborhood sold for $46,000, was renovated, and resold 3 months later for $99,000.  This recent sale happened at the end of December.  Somebody flipped a house during one of the worst residential downturns in history.  I say this to make the opposite point, however.  Very few people will make a lot of money in buying and selling houses for a long time.  Prices tend to go up between 3%-7% per year over the long run.  If you’re looking to make a killing on an investment property, bring a lot of cash to the table and be 100% sure about your profit potential.  If you’re an average person with a fairly small amount of cash, put it in an indexed mutual fund that tracks the S&P with minimal fees.  You’ll tend to do better over time than in trying to profit from the housing market.