WHAT’S UP WITH THE DOWN STOCK MARKET AND THE US CREDIT RATING?

Last week, the Dow Jones industrial average plunged to its lowest level since the low in 2008… S&P lowered its credit rating of the US …. what does this mean for real estate (since, of course, it’s all about real estate for a Realtor)?  While I’m not an economist, I thought I would share my perspective and the latest home sales statistics for the Atlanta, Georgia market (my home).

When the stock market goes down precipitously, many homebuyers panic and think it’s a bad time to BUY a home – of course, it’s the exact opposite.  When the economy is down, THAT is the time to purchase.  We’ve seen opportunities never seen before in the real estate market in current years.  These are the times when fortunes are made in real estate – buy LOW (that’s now) and sell HIGH (and “high” times WILL come again – they always do!)

I’m not sure what, if any effect, the events will have on mortgage interest rates.  In addition to lowering the US Debt Credit rating, S&P also lowered the rating of Freddie Mac and Fannie Mae.  These two entities buy most of the mortgages issued in this country, allowing banks to finance more home sales.  But what I understand is that since mortgage rates are tied to long-term Treasury yields, and Treasuries are considered a safe investment in uncertain times, mortgage rates are unlikely to rise because Treasuries will continue to do well.

I work in the Buckhead Market Center of Keller Williams Realty – part of the Rawls Group.  Each quarter the Rawls group commissions an in-depth survey of the home buying/selling activity in Metro Atlanta for the preceding quarter.  The findings for the 2^nd quarter of 2011 show some interesting trends.  Sales were actually HIGHER – up 3 percent as compared to the 2^nd quarter of 2010, but distressed properties still represent a large percentage of total sales – 40.9%, which is providing a downward pressure on pricing.

Here’s chart showing the home sales trends for the past three years in Metro Atlanta:

RELEVANCE FOR SELLERS: Current buyer price resistance is still very high due to the availability of low priced distressed properties.  Among all levels of listings, most (more than eighty percent) required a price reduction prior to sale, meaning that sellers are overpricing their homes intially.  Overall the LISTING INVENTORY is lower, but we still have 7 months of listing inventory, indicating that we are still in a strong buyer’s market.  (7 months of listing inventory means that if NO OTHER properties came on the market, it would take 7 months to sell the inventory currently in play).

RELEVANCE FOR BUYERS: there is an unusual opportunity, as noted above, for GREAT VALUE in purchasing a home.  Prices are still declining, there are many listings available, and a great number of anxious sellers.

Here’s a chart showing the percentage of sales that are DISTRESSED property sales:

With the fall in the stock market, even more opportunity is open to buyers savvy enough to know that NOW is the time to buy.  For sellers, there will be continued downward pressure on pricing until the market stabilizes.   We will be VERY interested to see what effect recent events have on our stats NEXT quarter!