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?

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.