We keep hearing about a housing recovery, but apparently it’s happening elsewhere.  As this recent AJC article reveals,  a huge percentage of metro Atlanta homeowners are still underwater in their mortgages.

According to the real estate website Zillow.com, of the worst 1 percent of underwater housing ZIP codes in the nation, nearly a quarter are located in Georgia. A big portion are in an arc that runs from Cartersville to south of the city and then back up towards McDonough. Some of the troubled ZIP codes are in Marietta, Dunwoody and Atlantic Station. 

How did it get so bad? Atlanta got caught in the cash-out refinance boom as bad as any city in the nation, pushing mortgage balances ever higher. And our sprawling geography allowed for indiscriminate overbuilding that resulted in a glut of new homes.  

As I said in a blog from March of 2012, another reason our housing market currently looks so bad compared to other cities is that we were behind the curve. Atlanta housing prices peaked in spring 2007, about a year after they hit the ceiling in places like Phoenix, Detroit, Miami and Las Vegas.  So both the housing collapse and recovery got a late start here in the Atlanta region. 

According to the S&P Case-Shiller home price index data, Atlanta saw home prices fall from mid-2007 through early 2012 by a whopping 37 percent. And that’s just the average for the more than 20 metro counties included. 

But the news isn’t all bad. Since March 2012, Atlanta has seen a 16 percent rebound in prices. And prices have been on the rise every month since then. Furthermore, there’s been a meaningful uptick in transactions; so home prices are recovering as the market becomes more liquid. It’s not yet time to pop the champagne in some of the hardest hit areas, but it’s an encouraging sign.

This overall upward trend will make little difference to individual homeowners in an area like Riverdale in Clayton County, where 85 percent of homeowners are underwater. Think of it this way: If a homeowner owes $100,000 on a property, and the house is worth only $30,000, how long will it take to be even?  Answer: 18 years – assuming a 7 percent annual increase in the home’s value.

What can an underwater homeowner do? Here are two options.

1.  If you’re less than 20 percent underwater, wait it out. As the market heads higher you could see parity in the next three to five years. If you like your home, this option is even more attractive. 
2. If you are more than 20 percent underwater, consider a short sale. (That’s if you find a buyer and if your mortgage holder allows it.) In a short sale the property sells for less than the mortgage debt owed and the bank agrees not to go after the difference. This will hurt your credit for at least three years. Depending on your circumstances and plans, that may be less painful than holding onto the property.

And where will you live after you short sell your home? Plenty of people consider renting an attractive option these days. There’s no maintenance or upkeep – and no lender calling about late payments. Riding this recovery out in an apartment or rental house may be worth considering.