January 14th, 2008

By John Adams
Contributor
Published on: 01/06/08

The Federal Reserve cut the federal funds rate by a quarter-percentage point recently to the lowest level in nearly two years. The move is designed to stimulate the economy and prevent a credit crunch from hurting consumer and business lending. Real estate sales should benefit from this.

Banks typically base their prime interest rate on this federal funds rate plus 3 percent, bringing the prime down to 7.25 percent. Lowering the prime rate tends to lower overall borrowing costs and encourage consumer and business spending.

Lowering the prime helps everyone making payments on loans that have an interest rate tied to prime, including many ARMs tied to the one year T-bill, most home equity loans, many business loans, and even some credit cards. In addition, by leaving more money in consumers’ wallets, the central bank hopes to encourage local banks to lend more money.

So how will Georgia real estate owners fare in 2008? There are favorable factors on the horizon for this new year:

> The cost of borrowing is still remarkably low, with 30-year fixed-rate loans for owner-occupants hovering around 6 percent, making this a great time to lock in a long-term loan. Interest rates tend to move up and down in cycles, and this home loan rate is very near the historical lows of 2003. And let’s face it —- the cost of borrowing is one of the prime drivers of real estate sales.

> Georgia has largely dodged the real estate meltdown that has hit Michigan, California, Florida and New Mexico. In fact, the economy here is strong and growing. We are adding jobs daily. And that’s another driver in real estate sales.

Our part of the United States has experienced much more stable growth and less of the speculative frenzy that drove up home prices wildly in some parts of the country. Remember that all real estate is local, and what’s happening in New Mexico is not relevant to what’s happening in your neighborhood. Many of those negative reports miss this point completely.

> Home prices in Georgia have not slipped, and, in fact, are still rising, though modestly. The average home in Georgia is worth more today than it was a year ago. As hard as it is to believe, your real estate is still a good investment and is likely to be worth more in the future.

> People still need a place to live, and they almost always prefer to live indoors.

With an additional 2 million to 3 million new residents projected to arrive in the Atlanta area over the next 20 years, we will need a lot more housing units than are currently available. And that new housing will cost more, not less. I am not suggesting a housing boom during 2008, but I am saying that demand is going to increase, and we will need new housing to meet that demand.

> This current market won’t last. The southeastern United States (even Florida) continues to attract new jobs and new residents. People are moving here to fill jobs, and other people are moving here for a sunny retirement.

In a recent study, the Realtors’ chief economist Lawrence Yun stated that he believes the worst part of the credit crunch has worked its way through the economy, and projected existing home sales in the United States to trend up in 2008.

He projects existing home sales to reach a total of 5.67 million for 2007, making last year the fifth highest on record. He looks for a total of 5.70 million homes sold in 2008, compared with the 6.48 million units sold in 2006. His prediction for new-home sales is slightly gloomier, stating that a recovery for this part of the market is unlikely before 2009. The new-home market traditionally makes up around 16 percent of all home sales annually.

These things tend to go in cycles, and when the current new-home inventory finally dries up, and the glut of foreclosures gets absorbed, demand will force prices higher in the years ahead. How high remains to be seen.

I am willing to go on record as predicting that 2008 will be seen as the year of the real estate turnaround in the Atlanta metro area. Home demand will be strongest in the detached single-family “under $300,000″ range, and sales will begin to pick up in spring, then improve through the remainder of the year.

The overall economy is doing well right now. Corporate profits are strong, unemployment is low and personal income is up.  Home values in Georgia have increased slowly and steadily over the past decade and now represent some of the best values available on a comparative nationwide basis and that is expected to continue. Owning a home continues to be one of the best investments made.
For Buyers in Today’s Market:
If your finances are solid and you can afford the home you want with a conventional  mortgage – and your settling in – the time is right.  There are markets where home prices continue to show steady growth, including Seattle, Atlanta and Dallas, according to Standard & Poor’s. You’ll find the best values if you prove yourself to be a qualified buyer who can quickly close the deal. Currently, the market is giving Buyer’s a variety of choices.  As a buyer, you have the time to view a house multiple times before making an offer.  Asking the seller for credits towards closing costs on the loan or home warranties is no longer out of the question.  The opportunity to make a well thought out decision for you and your family is now.  That means getting your mortgage pre-approved, where you have a written guarantee that you’ll get the loan for the amount you need.  Also it would help to avoid placing contingencies on the sale, such as the need to sell an old home before closing on the new one.
For Sellers in Today’s Market:
Selling in today’s market is not as easy as it was 6 months ago, but it is by far not impossible.  The two main ingredients to selling your home are pricing and staging.  Homes that are priced right, immaculately clean, and in move in condition are selling in the matter of only a few weeks and sometimes with multiple offers!  As mentioned earlier, there are a number of homes for buyers to choose from which means competition to YOU.  Buyers will choose a home that is exceptionally clean, with the most updates and the lowest price.  For you as a Seller, it is important to remember, everyone has different tastes in home decor. Neutralize your home as much as possible with colors and by removing personal items such as photos. A couple great update options are stainless appliances in your kitchen and/or lighting fixtures. Be as preemptive as possible by having your home
pre-inspected and any items repaired that are in need.  Also price competitively. Homes priced right WILL sell.  The name of the game is pricing and staging.
With interest rates still at an all time low, Buyers are still
Buying – and Homes are still Selling! 
Call us today to help you! 

 Excerpt taken from Jeff Nicholson
 The Federal Open Market Committee really stepped up and dropped the Federal Funds rate by .5% from 5.25% to 4.75%.  This means that short term money tied to Prime will be going down such as construction loans, home equity loans, car loans and credit card.  The mortgage market was expecting a .25% reduction and responded by easing slightly.  If you are planning on waiting a while for rates and prices to drop – You should remember, the advantage to buying now is that if rates do continue trending down you can always refinance in the future and the incentives being offered by sellers right now may not be available as this happens. 

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By Tim Barnes, Capital City Mortgage
We’ve all heard about the so-called Mortgage Meltdown, hyped so widely in the news. And here in Atlanta, you would have to be in a shell to not hear about the handful of local mortgage companies that have closed up or filed for bankruptcy.  In order to get your arms around these seemingly linked happenings, you really need to understand how these things are linked together, and how they are completely unrelated.  Let’s start nationally and finish locally. The Mortgage Meltdown is overblown and the worst of it is over.   The marketplace will correct itself in due time by itself and with the help of the Federal Reserve to some degree.  Let’s face it, there were mortgage companies figuring out a way to close a deal with borrowers whom were not qualified to rent an apartment.  Loan Officers in a hurry for their next commission check, were doing stated income and stated asset loans for folks with the flawed idea that stated income meant “State the income so that the loan will be approved.” These people knew full well that these borrowers would not be able to afford to make even the first payment on their new mortgage.  As these loans were “packaged” with other loans to be sold off to investors, and too many defaulted, the investors said “Thank you very much but you can have these loans back!”   The originating companies don’t have the kind of deep pockets to buy them, hence the “meltdown”.  As a mortgage loan originator, some of these “lenders” would come into our office with their new more liberal guidelines and we would shake our heads and say, “are you serious? 520 credit scores, one month out of bankruptcy and you’ll do a 100% loan?”  No wonder this happened.The mortgage companies have seen the problems in the creative loans they were offering and are now doing loans that make sense.  Rates today for a 30 year fixed rate loan are 6% or under.  The shady lenders are being exposed and the cream will rise to the top.  The economy is strong.  Everyone needs to take a deep breath; things are going to be fine.  If you are sitting on the fence waiting for rates to improve, or for prices of homes and condos to fall, you may be missing an opportunity.  Prices will fluctuate in all real estate markets, but the Atlanta market seems to be a bit better insulated than most.  We have been in a steady growth mode for so long here in Metro Atlanta. that homeowners have gotten used to consistent gains in home valuations.  That may slow down a bit I think, but a collapse is not imminent.If you have good credit, equity in your home, and some money in the bank,  now is a great time to buy or step up to the next house.  There are great deals right now for homes and mortgage loans.  Don’t sit on the sidelines and let another wave pass you by. If your current rate is over 6.25% you may want to evaluate if a refinance make sense.  

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