Home Buyers Category

Do Renters bring down property values in Today’s Market?

October 28th, 2011 at 1:35 pm by Mike Minihan

For Rent 200x300 Do Renters bring down property values in Todays Market?I attended my Home Owners Association annual meeting last night and the hot topic was passing an amendment to our bi-laws to increase the “rental cap” for the neighborhood. The Rental Cap is a rule that the home owners voted in that only a certain percentage of homes would be allowed to be leased at any one given time. These are very common in condominium complexes where owners do not want their building turning into an apartment complex full of renters, but until the mid 2000′s, rental caps in single family residence communities like mine were rather uncommon. In fact, as an agent who is listing and selling homes every day in this market, its rare that I see a rental cap in a community of homes that was not built in the mid 2000′s.

Anyway, an effort has been made by one of the homeowners to amend our bi-laws to increase the rental cap from 10% of homes being allowed to be rented out, to 25% being allowed. This of course sparked the debate between those for allowing people to rent and those against allowing owners to rent their homes.

Read about how these rental policies came to be in the mid 2000′s

Each side could debate the issue on many points, but the reason for the amendment was around property values. The side for the amendment claims that allowing more people to rent their homes out and move somewhere else, may result in fewer Foreclosures and Short Sales which have been depressing the home values in our neighborhood.

How Distressed properties bring down home values

The side against claims the age old “Renters bring down property values”. They think renters don’t take as good of care of the houses as owners do and this results in potential buyers of other homes in the neighborhood being turned off because someone’s yard looks shabby or there are too many cars in the drive way of the neighbors house etc…

As hard as I try, I have not been able to find any hard data that supports the hypothesis that renters bring down property values. In reality, when it comes to property values, the only thing that truly lowers property values is low comparable sales in the neighborhood…period.

A main cause of lower sales in many Atlanta neighborhoods these days is that so many of comparable sales that a Buyer, a Buyer’s Agent, or an Appraiser look at to determine the value of a home in that neighborhood are Foreclosure Sales and Short Sales (we call these “Distressed Sales”). If those are really the only recent sales there are in the neighborhood (as is the case in my neighborhood right now, and many other neighborhoods built in early and mid 2000′s) the appraiser and/or a Buyer will not and cannot disregard those sales when considering the value of the house.

In fact, the biggest deal breaker in the Atlanta Market right now is not the inspection (which usually ranks number 1), but the Appraisal. A buyer may agree to pay a certain price but unless they are paying cash, their lender requires an appraisal and if the appraisal comes in lower than what the Buyer agreed to pay…the buyer won’t get the loan anyway and the deal is dead unless the Seller agrees to lower the price or the Buyer agrees to bring more cash to the table.

In short I think that in a certain market, perhaps having a bunch of shabbily cared for houses that tenants occupy could be a turn-off to Buyers, but the only way it will affect property values is by lowering demand for that neighborhood and thus bringing lower offers and lower sales prices. In today’s market however, I don’t think this argument hold any water when basing it on property values. The problem that neighborhoods like mine have in regards to falling home prices is that most of the comparable sales are Bank Owned or short sales and these properties sell for lower and lower prices. Every sold home in the neighborhood creates a data point for an appraiser or buyer to measure the value of the home, so if you want to improve property values, the first thing you need to do is take measures to prevent foreclosures or short sales. Creating a more lenient rental policy, where owners are able to lease their homes out without applying for a hardship or begging a board of their neighbors to let them, gives home owners more options, before they are in danger of missing mortgage payments and in jeopardy of being foreclosed on.

Appraisers for conventional loans and FHA/VA loans are only looking for comparable sales that date back 6 months, so having no sales for 6 months in a neighborhood (as opposed to a few distressed sales) will force the appraiser to look outside the neighborhood (within 1 mile) for recent comparables which very likely could help home values to rise, if not stabilize, assuming that there is a ready willing and able Buyer that agrees to pay the price. Having a strict rental policy is certainly not helping neighborhoods like mine, so in my personal and professional opinion…why wouldn’t you try another approach?

If you’d like to read my letter to my neighbors regarding the vote on our amendment, I’ve posted it here.

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Rental Caps in neighborhoods built in the mid 2000′s

October 28th, 2011 at 12:55 pm by Mike Minihan

HouseForRent 300x199 Rental Caps in neighborhoods built in the mid 2000sA rental cap in a neighborhood is a maximum number of homes or a percentage of homes in the neighborhood or complex that are allowed to be rented at any given time. For example, if the rental cap is 10% for a neighborhood of 100 homes, only 10 homes are allowed to be rented out at any given time. This is controlled usually by a bi-law of the Home Owners Association (HOA) that governs the policy.

Rental caps have been a common practice for condominium complexes and even for townhome communities, in order to keep a development from being over-run with renters versus owners. Generally speaking, most people believe that a renter does not care for and maintain a home to the level that a home-owner would care for it. It is not common in Atlanta Metro however, to see a community of single family detached homes instill a rental cap, but a small trend seemed to emerge in neighborhoods built in the early to mid 2000′s in Atlanta.

The question is why were neighborhoods built during the 2000′s creating rental cap policies? Well, if you think back to that time, money was flowing freely…many people were buying homes with no money down, meaning that they were taking out 100% financed loans on houses. The rates were low, housing was booming and that was just what people were doing.

With houses appreciating at record rates, and with new home communities popping up on every piece of vacant land in site, investors were seeing dollar signs. New home communities were pricing homes in phases. The initial phase was the lowest price, many times all the builder had was a network of roads, dirt marked off with string delineating the proposed property lines and a trailer with some drawings. No model home or anything. They offered per-construction pricing to those Buyers who could see their vision and were willing to take the risk that the homes and neighborhood would turn out like the salesperson said. Once they built the model home, the pricing went up several thousand dollars…then another price increase would come when the first phase was complete…and so on…The initial buyers who got in at the lowest prices could realize on paper at least, a $30k-$40k bump in equity by the time their home was built, just because the pricing was rising and the builders couldn’t build fast enough to meet the demand.

In come the investors who put down a few thousand dollars at the outset with the plan to flip the home when its done for that $30k profit or so. As the market started to cool a bit, the builders were not able to get buyers to pay the price increases that they anticipated so those $30k-$40k profits were not there and the investors decided to rent the properties out instead. This did not make the new homeowners happy that a bunch of renters who didn’t take as much pride in their homes as the owners, were moving in, so the home owners started to band together to form Rental Caps for these new neighborhoods to keep people from doing that in an effort to keep the neighborhood looking good and keep these investors out.

Many of these home owners were moving from condos or townhomes so they were familiar with these types of policies and thought that they would serve a purpose in a single family detached neighborhood too.

Fast forward through the bubble bursting and the waves of unemployment, foreclosure and ever-increasing number of short sales on the market and the topic of “Should we have this strict rental policy in place anymore” is springing up in many of these communities.

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How Distressed Properties Bring down Property Values

October 28th, 2011 at 12:43 pm by Mike Minihan

FallingHomePrices 300x225 How Distressed Properties Bring down Property ValuesDistressed properties bring home prices down.  You see in the news everyday something about distressed properties, foreclosure rates and falling home prices, but lets just boil this down the simplest question…How do “Distressed Properties” bring down property values… exactly?

First, lets define what a distressed property is.  A distressed property, for the sake of this argument, is a property that has been foreclosed on (meaning the bank has repossessed the house and now owns the house), or the home is in some stage of “Pre-Foreclosure” which means that the home owner has fallen behind on making their mortgage payments and now it is only a matter of time before the bank forecloses on the home-owner and repossesses the home. Pre-Foreclosure sales are usually conducted as Short Sales.

Short sales are when a home owner puts their home up for sale but the market is not willing to give them enough for the Seller to pay off the mortgage(s) on the property.  The Seller owes more than their home is worth.  So the seller agrees to sell the home to the Buyer contingent on the Seller’s Bank agreeing to take less than is owed.  That’s a short sale.

So Distressed Sales are Foreclosure sales and short sales.  Both of these types of sale put an emphasis on getting the home sold as quickly as possible and in order to sell a home quickly…you need to market the home as a deal.  What’s a deal in today’s market?  A great price…A LOW PRICE.  If you price a house low enough, you can sell it in a day, regardless of the market you are in, and Banks know this.  Typically, the bank or a Seller trying to short sell their home, will put a price on a house and continue to lower the price systematically and rather rapidly until the home sells.

So how do these low sales bring down the values of the homes that are not foreclosures or short sales?

Traditionally, Market Value is defined as whatever a ready, willing and able Buyer is willing to pay for a home…Period.  The way that Buyers judge value in most cases is by comparison.  If someone paid $100k for a house last month, in the same neighborhood, that is roughly the same size and has roughly the same amenities and features as this house, than the Buyer can conclude that the market value of this house is around $100k.  Maybe this house had an updated kitchen though and brand new hardwood floors which the other comparable property did not have when it sold…perhaps that’s worth an extra $20k to the buyer so they are willing to pay $120k.

Now-a-days, what a Buyer is willing to pay is not the only consideration.  The Appraiser is the person hired by the Buyer’s Lender to determine whether the house is worth what this Buyer has agreed to pay, based on a comparative market analysis.  The main component of the appraiser’s comparative market analysis is “comparable sales” which means homes like the home in question that have sold recently.  To boil down, for simplicity’s sake, what the appraiser looks at to determine what a comparable sale is, here are the three main criteria that determine whether a sold property is “Comparable” to the subject property and can be used to help determine value:

1.  The home must have sold within the last 6 months.
2.  The home must be located within 1 mile of the subject property.
3.  The size of the home must be within 20% of the square footage of the subject property.

Based on these three main criteria, plus of course a series of adjustments that the appraiser makes, the appraiser determines whether the home is worth what the buyer is agreeing to pay for it.  If the appraised value comes in under the agreed upon price, the bank will refuse to do the loan for the Buyer and the deal falls apart unless the Seller is willing to come down on the price, the Buyer agrees to bring the difference in cash to put down on the property, or the Buyer and Seller meet somewhere in the middle.

To sum it all up, if the properties that are considered comparable to yours in your neighborhood are selling for lower prices, and those are the only sales, than the amount you would be able to get for your home is lower too…thus your property value has fallen.

So for example, if the only homes that have sold in your neighborhood in the last 6 months are low priced foreclosures or short sales (sold for less than is owed on them), than these “Distressed” properties are the only comparable data points that a Buyer or an Appraiser can use to value your house.

That’s how Distressed Properties bring down property values.

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What does the Price to Income Study really Mean to Atlanta Real Estate?

August 30th, 2011 at 1:45 pm by Mike Minihan
HousingValues 150x150 What does the Price to Income Study really Mean to Atlanta Real Estate?In our last article: “Is Atlanta Housing Really 8% Undervalued?”, we talked about the study that Trulia released and the Wall Street Journal wrote up about the Linkage between Income and Housing prices between the pre-boom years of 1985-2000 and today’s current price to income ratio.  The study was no doubt an interesting look at our housing markets today and one that I have not seen illustrated in this way.  So what does the study really tell us though?
The first thing that most home sellers are thinking is that prices are too low now so they should list their homes higher than other homes that have recently sold, right?  That’s the danger of these headlines I think because in most areas of Atlanta, the last sale in the neighborhood is still the “Ceiling”, meaning the top price anyone will pay, so if you interpret this study that way, you will end up with an over-priced listing that will not sell in this market.
I think what this study means is that obviously, the price of real estate has come down from the peak (which in Atlanta was the third quarter of 2004) and that people are not leveraging themselves as much as they did back during the boom.  What it doesn’t look at is the impact that our extremely low interest rates have had on markets.  With rates hanging below 5% for quite some time now, compared to where they were in the 80′s and 90′s which was twice that, this study does not exactly compare the affordability of house.
For instance, in 1985, the average interest rate for a 30 year mortgage (according to FreddieMac.com) was 12.43% compared to today’s rate which is something like 4.25%.  If I made $100k back in 1985 and bought a $300k home, for argument’s sake, lets say I was mortgaging the whole thing (which was not possible back then)…I would have been paying $3185 per month in Principal and Interest (30 year fixed amortized mortgage).  If I’m making $100k today and buy a $300k home the mortgage on the same $300k would be $1475.  That’s almost twice as affordable on the same income!   A better study would be what percentage of people’s income they were paying for their house payment, if we really wanted to understand this.  There is a study done by the National Association of Realtors called the Home Affordability Index that is released on a quarterly basis.
Let’s back up a minute now and consider the difference in the lending environments between 1985  and 2000 compared to now.  The down payment requirement in the 80′s was pretty much 20% of the price of the home.  Today most people are putting down between 5% and 10% for a conventional loan, and if you are buying a home via FHA financing, you can put down as little as 3.5%.  Let’s illustrate then what the difference might look like between your standard loan in 1985 with a 20% down payment and your average run of the mill loan today with 10% down at 4.25%

PaymentComparrison What does the Price to Income Study really Mean to Atlanta Real Estate?

As you can see, not only are people paying less of a percentage of their income on the down payment to purchase the home, but they are paying considerably less of their income on their monthly payment, which in the end, is what a home buyer is really buying.  I don’t know about you, but to me, this makes a pretty strong case to buy a home right now doesn’t it?

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Is Atlanta Housing 8% Undervalued?

August 30th, 2011 at 1:37 pm by Mike Minihan

price reduced 300x199 Is Atlanta Housing 8% Undervalued?In a Wall Street Journal Article dated August 17, 2011, Trulia’s study on the link between people’s income and the cost of housing claimed that Atlanta’s Housing Market is 8% undervalued. The study is a very interesting one and the ratio of income to home price has been largely ignored since the housing boom started in the US back in 2000.

Some background of the study:

The study compared the “Pre-Boom” period of 1985-2000 to the boom that started in 2000, peaked nationally in 2005 and then compares it to today’s “Post-Boom” (if that’s what we want to call it) housing markets. They derive a ratio of the average income to the average sales price in 130 housing markets across the country and compare the “pre-boom” ratio to today. Nationally, between 1985 and 2000, Americans were spending at 2.9 times their income on their home, so if a family was making $100k per year, they were buying about a $290k home. Nationally, this number peaked at 5.1 in 2005 so that same income earner was buying a $510k home while making the same amount of money.

I think it was obvious to most during those heydays, that if people’s salaries weren’t rising by anywhere close to the rate that housing prices were rising, that this was something that could not be sustained for long. Of course no one wanted to talk about that when they were seeing their home value rise by 30%+ in one year (which was happening in some parts of the country).

Trulia’s study compared the ratio “pre-boom” then to today’s ratio of income to house-price and found that in about 30% of the 130 housing markets in the US studied, real estate is currently “under-valued” compared to the days before things went crazy. Among that 30% was Atlanta, coming in at 8% under what people were making to spending between 1985-2000.

Let’s look at Atlanta specifically compared to the rest of the country though. In the Trulia study, Atlanta’s income to price ratio during 1985-2000 was 2.284 and it peaked at 3.2 in the third quarter of 2004. Today we have come down to 2.11 which is where they are getting the -8%. The study does illustrate the cooling off of the market that we’ve been experiencing and looking at it optimistically, may be an indicator that prices may start to rise in the near future.

The better indicator’s that we know drive pricing in a housing market however are absorption rate (also referred to a ‘Months of Inventory’) and the amount of distressed inventory on the market currently as well as the delinquency rate on mortgages which a large percentage of which will likely result in future foreclosures and short sales. We’ll cover that more in our next article titled The impact of Distressed Properties on Atlanta’s Housing Price Points.

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The Impact Distressed Homes Have on Atlanta’s Housing Prices

August 30th, 2011 at 1:34 pm by Mike Minihan
It’s no secret that the large amount of Foreclosed properties and Short Sales had put downward pressure on home prices in Atlanta, but the impact of these “Distressed” properties is further reaching than most people see, especially those who are buying or selling in the higher price points.
When we look at the 2Q 2011 numbers for Metro Atlanta, we see that the majority of distressed sales are taking place in the under $200k price point, and less and less percentage of the sales in the over $200k price points are distressed sales.  At first glance, if I’m trying to sell a $500k home, it doesn’t look like I’m all that effected by distressed sales, especially compared to the seller trying to sell his $100k home right?
2011 DistressedSales The Impact Distressed Homes Have on Atlantas Housing Prices
Wrong!  Economics 101 dictates that price is driven by supply and demand and there is no truer illustration of that than in residential real estate.  What we actually have is a domino effect, and here is why…
The percentage of sales that took place in the under $200k market made up 64.4 percent of the total sales for Metro Atlanta in second quarter of this year.  Of those sales, 53% of the sales in the under $200k price range were distressed sales.  Now, distressed sale means a Foreclosure (where the bank has foreclosed and now owns the home) or Short Sale (where the Seller negotiates with the bank to take less than is owed on the mortgage instead of foreclosing on the owner).  When a home owner short sales their house, there are usually credit implications that will prohibit them from buying another house immediately so these Sellers are exiting the housing market.  When the bank sells one of its foreclosures, it is also exiting the market, meaning that it is not going to go on to buy another home, after all, their goal is to get these non-performing assets off their books as soon as possible so that they can use what money is left to lend and make money on which is the business they are in.
So looking at this another way, 53% of the sellers in this under $200k market, who would usually be going on to buy a home in the next price point, are exiting the market which means they are not going on to buy another house.  The price point from $200k-$350k is generally a “move-up” price point meaning that it relies on the sellers from the under $200k price range to move up and buy a home in the next price range.  The $350k-$500k market is relying on the price point below it to move up into a house in this price range so that they can move up in the  $500k-$750k price range and so on and so on….
So you see that all price ranges are interdependent in our market and that high percentage of seller’s who are exiting the market in the under $200k price point is detrimental to all of the price points above it, especially between $200k-$750k.  This is why it is so important that the we get the current glut of distressed inventory sold, regardless of the price point.  Of course to do that we also have to stop the mortgage delinquencies from happening from here on out which is tied to a much larger problem that needs solving which is the high unemployment rate.  When people don’t have jobs, they can’t make their mortgage payments.

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Atlanta Real Estate Market Update – March 2011

March 22nd, 2011 at 10:56 am by Mike Minihan

Atlanta’s Spring Real Estate Market is Here!

MOI March2011 Atlanta Real Estate Market Update March 2011What’s most notable about our Atlanta Real Estate Market right now is that as we enter the Spring seasonal market, we are witnessing a consistent drop in number of Active homes on the market each month since September of last year.  At the end of September, Atlanta Metro had 29,624 Active listings.  Each month that number has dropped to 25,303 at the end of February.

Another notable number is that the number of Pending sales, which are sales that are under contract and due to close sometime in the future, is at its highest level since October of 2009 which marked one of the first tax credit expirations from the government for first time home buyers, which we consider to a bit of a false market trend.

What does this mean?  It’s GOOD NEWS!  The number of pending homes and the ratio of pending homes to active homes is a great indicator of what the near future will hold.  With a pending ratio of 20.5% at the end of February, we are likely to see the months of inventory come down.  For Sellers and home owners, this is a good thing because we will not see prices increase as a whole until the months of inventory gets down to 6 or 7 months.  We are currently at 11.1 months.  As number of listings falls and number of pendings rise (without any government incentives) we begin to see reliable data that supply and demand are beginning to get back to where they need to be for home prices to rise.

Buyers, this is not time to sit on your hands.  Interest rates have begun to rise and are expected to continue to rise.  Home prices have been bouncing along the bottom for some time now, but as these supply and demand indicators reflect, their are less homes on the market which means more competition and less choice.  With less choice and more competition, you Buyers will begin to lose some of your power in this Buyers market, so if you are thinking of buying this year or next, putting that off is probably not going to be your best financial decision.  Contact me to set an appointment to discuss your housing needs and we can put a plan in place to best fit your specific situation.

Tags: Atlanta Housing Statistics, LinkedIn, Months of Inventory
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Buckhead Neighborhoods Interactive Map

March 2nd, 2011 at 12:24 pm by Mike Minihan

Check out the newest addition to minihangroup.com…The Buckhead Neighborhoods Page .  We’re really excited to get this out to our buyers and sellers.  Ever wonder where a certain neighborhood is in Buckhead Atlanta, GA?  Or, ever wondered what a certain area of Buckhead is called?  This interactive map that we’ve developed takes the 38 Buckhead Neighborhoods and shows your their exact boundaries on a map.  Just hover over the name of the neighborhood and that neighborhoods boundaries are highlighted on the adjacent map of Buckhead.  Conversely, if you hover over the map itself, the name of the neighborhood you are hovering over will be highlighted in the list neighborhoods to the left of the map.

Our goal is to make this page a great jumping off point for anyone who lives in Buckhead or wants to live in Buckhead, and that this will be helpful in showing people visually exactly where all of the 38 Buckhead neighborhoods are located.  By clicking on the neighborhood, it will take you directly to all of the active homes for sale in that neighborhood so that you can view pictures, videos, asking prices and all of the listing details for every home on the market in the neighborhood.  You can even setup a time to view the home with me if you like.

I’m really excited to bring this new functionality to you and would love to hear your comments and feedback on the tool below.

Tags: Buckhead Homes For Sale, LinkedIn
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How Does Real Estate Stack up to other Investments?

February 16th, 2011 at 12:40 pm by Mike Minihan

So an investor measures their investments’ performance by ROI (return on investment) right?  Given that, if you had to guess whether an investment made, over the last 10 years, would have done better in the stock market or in real estate, what would you say?ROI of Real Estate How Does Real Estate Stack up to other Investments?
I’ll bet that comes as a surprise to most people.  Yes, the stock market took a big hit with this down economy too, but it had some pretty good days as well.  After going through what could arguably be considered the worst housing market we have seen, real estate still blows these other investments away, and its only going to get better moving forward (in this agent’s humble opinion)

The next several years will probably turn out to be the best Real Estate Investor’s market of our lifetime.  Real Estate has always been a great investment and when asking millionaires of today and of days past how they became millionaires, Real Estate is top of the list in this country.  Of course the last several years has been very hard on the Real Estate market and soured a lot of people to the idea of buying a home to live in, much less buying a piece of real estate as an investment.

But it doesn’t take a genius to figure out that buying low and selling high is how you make money, and home prices are very low right considering where they were at the peak of the bubble.  Investing in real estate can mean a lot of things: Buying a home to live in to most families is considered an investment; buying a home to fix it up and sell at a profit is considered an investment; and buying a home to rent out for a monthly cash flow is another form of investing in real estate, to name a few.  With interest rates still very low, and home prices at 10 year lows in some parts of Atlanta, we’re seeing the perfect storm for investors.

‎“With home sales starting to improve, and with prices now possibly forming a bottom, real estate could well be the asset class that represents…

the best low-risk buying opportunity out there today.”

- Wall Street Journal

For more information on buying or investing in real estate, contact me.


Tags: LinkedIn, Opportunities, Real Estate Investing
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January Atlanta Housing Update

January 14th, 2011 at 2:52 pm by Mike Minihan

jan2011MOI January Atlanta Housing Update

The December 2010 Atlanta housing market statistics show a remarkable increase in the inventory level of homes for sale than the same time last year, mostly because last year’s December was a reflection of an increase in demand due to the first time home-buyer tax credit ending.  This past December did not have any sort of artificial demand, nor did the other months of the 4th quarter. Read more

Tags: Atlanta Housing Statistics, Buyer, First Time Buyers, LinkedIn, Months of Inventory, Sellers
Posted in Atlanta Housing Statistics, Home Buyers, Home Sellers | Add your comment
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