They say history has a tendency to repeat itself.  I believe that to be true in the housing market as well.  For the past several years, I have watched homes sell in my market (Atlanta Metro Area) for prices that I have always considered way under valued.  Atlanta has been on the hot list of cities with the most foreclosures and the most loss of value percentage-wise.  However, the interesting thing is, Atlanta always was a bargain compared to other cities of similar size.  With few exceptions for certain urban neighborhoods, home prices have always remained affordable and when other areas like NY, California and Florida were experiencing tripple digit increases in price each year in an unsustainable house of cards, metro Atlanta homes were only appreciating at a very sustainable rate of 4-5% per yer when the market was healthy.  Even in the peak of the market, a middle class family could purchase a decent 4 bedroom home (2400 SF or so) in a respectable suburban neighborhood with good schools, good access to highways and reasonable proximity to the city (15 miles away or so) for under 200K.  I was always shocked when I watch the TV shows on HGTV and other networks showing a 2 bedroom 1 bath bungalow in California going for 800K and I asked myself, how can normal people afford to live there?  Somehow, I always took comfort in knowing that in my city, the cost of living housing-wise was very reasonable and there was a good quality of life for a middle class family.

Image Courtesy of Njaj / FreeDigitalPhotos.net

When the market began to decline and foreclosures started to rise, I honestly felt immune as I watched the initial stories on the Internet talking about home prices falling by 20% and more, etc.  To me, it seemed like that was happening because the original price was unsustainably high and since I lived somewhere that didn’t have such high prices to begin with that we would not see the kind of decline that those other overpriced cities saw.  Admittedly, I was wrong.  I learned the hard way that an economic crisis like that ripples through the entire country.  Also, I learned that since Atlanta was one of only a few non judicial foreclosure states, that we were topping the list of foreclosures.  Also, mortgage fraud was rampant here; primarly because of the extreme growth in the 90′s that caused really nice renovated homes and new construction McMansions to be located right next to old and neglected homes which enabled unscrupulous people to utilize that to jack up appraisals to commit fraud with lenders, etc.
As I watched what was already a reasonably priced home fall in value to levels that were too low to believe, it dawned on me that this can’t continue forever.  I also watched as buyers sat on the sidelines trying to time the market and wait for the bottom.  The cycle was obvious to me but frustrating that very few others seemed to see what was going on:  the evening news would run stories about home prices falling; putting extreme fear into people so that even with low prices and low interest rates (and even with a home buyer tax credit too) many were still continuing to rent and sit on the sidelines for fear that what they buy today will lose value.  I knew that at some point, the foreclosure inventory would slow down, the news would finally print the first stories of recovery – indicating that home prices have once again started to rise and it would be at that moment that everyone would want to buy and get in on the deals before it’s too late.  The problem is, by the time the news announces the time is right then the ship has sailed and it’s too late to get in.
Now, we are at that point.  I constantly see clients and friends who have tried to wait for the perfect timing completely miss the boat.  It is happening today in the lower end of the market especially that demand is WAY up and supply is way down.  We have shifted to an extreme seller’s market by definition and homes are selling fast.  It’s virtually impossible to put an offer on a home that is under 200K in my market without facing a multiple offer situation and bidding war.  Prices are still low compared to their peak highs; but they are heading up rapidly now and many are still thinking that it’s business as usual and wondering why they keep putting offers on homes and not getting them.
The concern now is that it’s unhealthy for the market to increase at too quick of a rate.  It seems that we are at the begining of yet another bubble.  My prediction is prices will rise and once momentum gets underway, they will rise even faster; potentially causing a second bubble.  Though there are some wild cards at this point which could prevent this from happening:
1.  Much of the increased demand is from investors who are buying up property for rental income and long term gains and that can go away overnight leaving a demand void.
2.  The appraisal process will likely have some influence on keeping prices in check.
3.  The overall economic climate is still very unstable and until unemployment goes back down and job security increases that may keep prices in check somewhat as well.
Still, the potential is there for yet another bubble.

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