Home prices rising more slowly, power might soon shift to buyers

Metro Atlanta home prices continue to surge higher, a closely watched index shows, but there are signs that after a year of solid acceleration, the market may be starting to run out of steam.

The region’s prices in September were up about 19 percent from a year before, according to the latest S&P/Case-Shiller Index. Nationally, prices were up an average of 11.2 percent.

The boost in Atlanta was spurred by low mortgage rates, aggressive purchases by big investors, and pent-up demand from thousands of people who had held back from buying during several years of painful recession.

For many months, sellers had the advantage and prices jumped.

But soon, the balance between supply and demand will be shifting back, said economist Ellen Haberle of Redfin, a national real estate brokerage. “We think prices have started to decelerate. I’d expect Atlanta prices to grow in the single digits in the coming year.”

That is because some investors are expected to sell, builders are producing new houses and many homeowners have been enticed by the improving market to put their homes up for sale. The result will be more power moving to buyers.

“We are hearing more stories about buyers low-balling their offers – throwing out offers that are 7 or 8 percent below the list price,” Haberle said.

That doesn’t mean prices will slip, said Nancy See, president of the Atlanta Board of Realtors.

“I think in 2014, the growth in units sold and prices will be flat to moderate – maybe 5 or 6 percent up,” See said. “But I think we will still have a good market.”

Some fundamental factors should improve in the new year, she said. More young people will leave home to live on their own, and more people will get married and want a house. Mortgage rates will “stay reasonable.”

Rates for October averaged 4.19 percent, according to Freddie Mac. A year before, they averaged 3.35 percent.

Hank Miller, a broker and appraiser in Marietta, warned against taking region-wide data as a guide for any specific home or neighborhood. Case-Shiller’s numbers blend thousands of sales from an array of different places, he said.

“You are looking at so many micro-markets, so many different markets,” Miller said. “And the thing that determines value, first and foremost, are the school districts.”

Prices are rising in much of Cobb County, along the Georgia 400 corridor and in many established neighborhoods of Atlanta, but they are falling in some places, he said. “I don’t think the economy has truly recovered.”

And Miller is cautious about 2014. The past year’s buying rush will not be repeated next year, Miller predicted. “In the spring, you’ll have more cautious buyers and more educated buyers and I think sellers could be in for a rude awakening.”

And while the economy has been adding jobs, the pace of growth has been modest at best, so many people are not seeing raises in salary, said Robert Brusca, chief economist at FAO Economics in New York.

That means that higher prices have lowered home affordability, he said. That, in turn, could further cool the market.

The national real estate market has often cycled through ups and downs, but with each turn of the calendar it nearly always spiraled a little higher. From the Great Depression of the 1930 until the Great Recession that started in 2007, there was never a prolonged, national housing crash.

When it came, Atlanta – one of the stars of the housing bubble that preceded the downturn – was pounded harder than most other metro areas. The average price plunged roughly 40 percent, according to Case-Shiller. Since hitting bottom in early 2012, prices have climbed nearly that same proportion, but that only brings prices back to 2002 levels.

Much of the aftermath, too, has been unprecedented: the river of foreclosed properties, the large-scale purchase of homes by huge financial firms.

Blackstone Group, for example, owns more than 4,000 homes in metro Atlanta, most of them rented out – including 1,400 houses purchased in one day, according to Laura Gottesdiener, author of “A Dream Foreclosed.”

Now, some expect investors like Blackstone to unload many of their holdings, which would add to the inventory of sales. Moreover, when houses owned by such investment companies sell, the profits flow out of town, Gottesdiener said.

“It is much less likely that money will circulate in the local market,” she said. “It won’t be spent on taxes or roads or kids.”