Throughout metro Atlanta, thousands of vacant homes now owned by the federal government sit languishing — dragging down home values and adding to a mass of housing woes that stunt the region’s economic recovery.
Atlanta’s nearly 4,600 government-owned foreclosed properties is No. 1 in the nation, far outnumbering those in Phoenix, Las Vegas and other major metro areas hit hard by the housing bust, according to a report last month from the Federal Reserve. Statewide, Georgia has more than 6,400 of the homes, second only to California, with nearly 9,000.
But the region now stands to be one of the biggest winners of a federal pilot program to turn the homes — nearly 84,000 total nationally — into rental housing.
The plan would allow investors to buy up pools of foreclosed homes to rent out. The goal: chip away at the glut of homes and ease pressures on deteriorating prices. Nationwide, declining home values have resulted in an estimated $7 trillion loss in household wealth for Americans — significantly dampening consumer spending. Middle-class families have been particularly hard hit since home equity accounts form a larger chunk of their overall wealth.
While it may be better to have homebuyers who actually plan to live in these houses, investors buying foreclosures is still a plus, said Mitch Kaminer, president of the Atlanta Board of Realtors.
“Without investors, the market would really be stagnant,” he said.
Hitting new lows
Awash in foreclosures, metro Atlanta saw home prices plummet in November for the fourth straight month to a 13-year low, according to the widely watched Standard & Poor’s Case-Shiller Home Price Indices.
Nationally, prices fell for the second consecutive month in 19 out of 20 cities tracked by the indexes.
“Some of these markets are hitting new lows,” said Maureen Maitland, vice president of S&P Indices. “That includes Atlanta.”
A host of problems has left the region lagging behind other metro areas that are finally showing some sparks of recovery.
The influx of newcomers to Atlanta has dropped off sharply since the recession. Roughly 30,000 people a year moved here in the past three years, compared with 100,000 annually at its peak, according to Atlanta Regional Commission data. And metro unemployment remains well above the national average at 9.4 percent as the real estate industry — traditionally one of Atlanta’s biggest job engines — continues to flounder.
Meanwhile, foreclosures and short sales — when a property is sold for less than is owed on it — made up roughly 60 percent of all sales here last year. And the problem is likely to remain unabated in 2012 as lenders continue to offload properties at cut-rate prices.
“It’s much worse than most [people] can imagine,” said Steve Palm, president of the Marietta-based real estate data firm SmartNumbers. “We have to find a bottom.”
Roughly 26 percent of all existing home sales in Atlanta last year were priced below $50,000, compared with just 2.5 percent five years ago, according to the firm.
‘Piece of the puzzle’
Atlanta likely has a large number of lender-owned houses, in part, because foreclosures don’t have to go through the court system like in most other states, said Henry Lorber, managing director at Hays Financial Consulting.
The foreclosure process in Florida, a judicial state, may take 18 to 24 months. In Georgia, it can take just 30 to 45 days, Lorber said. “There are very few road bumps in between a default and a foreclosure.”
At the end of last year, Atlanta had 4,557 foreclosed properties owned by government-backed mortgage finance companies Fannie Mae and Freddie Mac, as well as the Federal Housing Administration.
Chicago was the next closest with 3,443 homes, according to the Federal Housing Finance Agency.
Add in properties owned by commercial banks and the number in Atlanta is closer to 10,000, said Dan Immergluck, a Georgia Tech expert on foreclosures.
Nationwide, the Federal Reserve estimates as many as 1 million new lender-owned properties could flood the market each year in 2012 and 2013.
Some industry observers are skeptical of how much the pilot rental program would boost the housing market — if at all — in hard-hit metro areas such as Atlanta.
At best, it takes properties off the market. That could increase home price appreciation nationally by 0.5 percent in the first year and 1 percent the following year, Goldman Sachs analysts said last month.
But the actual effect on prices would likely be less, Goldman Sachs said, partly because some properties may be in too poor of a condition to rent out. Also, others may be spread far apart geographically — even in the same metro area — making them more expensive and time-consuming for investors to manage.
Managing single-family homes is much more labor and capital intensive than managing apartments, said Sen. Johnny Isakson, R-Ga., who served as president of Northside Realty in metro Atlanta for two decades.
Ultimately, foreclosures need to move through the foreclosure process, though the rental idea may be a small part of the solution, Isakson said.
“That’s a piece of the puzzle,” he said. “There’s no silver bullet.”
Setting standards
While turning the properties into rentals is a good idea to consider, many neighborhoods could be hurt if there aren’t standards in place to make sure investors keep up the properties, Immergluck said.
Many communities already have vacant homes owned by inexperienced investors who can’t rent them out — leaving them boarded up and vulnerable to vandalism, he said.
Investors must have a comprehensive strategy focused not just on what they plan to do with the foreclosed homes they buy but the surrounding area as well, said Mtamanika Youngblood, president and CEO of Atlanta-based nonprofit Sustainable Neighborhood Development Strategies. For example, Youngblood asked, what will they do about the trash strewn vacant lots next door?
“Without that, I don’t know how it could work,” she said. “It’s just common sense to me.”
Atlanta should consider a stronger demolition program, Immergluck said. Cleveland, for example, has bulldozed thousands of vacant homes, selling the lots for redevelopment or transforming them into green spaces, he said.
In the housing crisis of the early 1990s, homes were offered to nonprofits or governments to then sell to low-income families, Lorber said.
“That program worked, and it would work again,” he said.
Buyer opportunities
Still, for many would-be homebuyers, the deeply discounted properties have created an avenue to homeownership they once considered out of reach.
About a year ago, Douglas County schoolteacher Stacey Mathess, 28, was able to buy her first home with the help of the federal Neighborhood Stabilization Program created to address the foreclosure crisis in heavily hit areas like Atlanta.
The state, cities and counties received more than $150 million in the first round of funding alone to buy, renovate and sell hundreds of lender-owned properties, said Glenn Misner, field services director for the Georgia Department of Community Affairs.
Mathess, who received help with a down payment and closing costs through the program, bought a three-bedroom, two-bathroom house in Douglasville for $85,000.
That wouldn’t have been possible if the home had been priced at regular market value, she said.
“My mortgage was cheaper than renting a one-bedroom or two-bedroom apartment,” Mathess said.
The portion of the neighborhood stabilization program the state runs has started to reinvest income it’s generating from sales to continue rehabilitating houses and could potentially continue for years, Misner said.
“We knew going in that we’re just going to be a small part [of the solution],” he said. “It’s a much, much bigger problem than what we can do.”
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