State of the Union- July 2013 prices are still rising, but finally the rate of increase is slowing
OK so we are half way through Summer, and it is incredibly rainy here in Atlanta! It reminds me of my first summer in Dallas in 2007 where it seemed to rain nonstop for 6 weeks in the summer. Very wild. In any case, I do not know if it is the rain or the increase in interest rates but prices are finally not climbing as fast as before. PRICES ARE STILL CLIMBING THOUGH! The Atlanta Condo Deals are still there and Atlanta remains the cheapest condo market in the world when compared to per capita income!
Let me start with the interest rates. Interest rates (defined by the 10 year Treasury note) are up over a full percentage point in the past 8 weeks. In fact the 30 year mortgage is now up from a low of about 3.3% to 4.5% today. Still very ,very low, but they are up and that basically pushes someone who perhaps has good credit, makes $70,000 and has minimal debt. At 3.3% they would likely qualify for a purchase price of up to $220,000, at 4.5% they now qualify for a $200,000 condo. People qualify for less in terms of purchase price for a condo given the monthly HOA fees.
So, on a go forward basis, I do not think we will see the same appreciation (20%+ in Atlanta over the past year), but I do think we will see mid to high single digit appreciation for the next three to four years. I do not think interest rates will be a significant issue until the 30 year mortgage rate breaks 5.5%.
As I mentioned in my last blog post prior to my European adventure, I have clocked over 3 million in sales year today, even more if your were to include lease volume. I have passed my Broker coarse, and enjoyed a number of SEO website meetings in Eastern Europe over copious amounts of Chivas Regal and Bushmills Black Bush. I am trying to wrap my head around how to make my website more focused and easy to navigate, yet still all encompassing with regard to Intown areas and buildings.
I just had two deals close Friday with first time home buyers purchasing distressed properties. One was a foreclosure where the California investors, had lawsuits, liens from the HOA, and other issues to contest with prior to closing through the Fannie Mae system. The other was an investor flip which ended up being very attractive, but the fact that it was a flip ensured for a long drawn out lending process with excessive reviews. I joked with that client that it is my lower priced deals which tend to take all of my time, while the higher priced deals tend to simply work themselves out. Both deals closed weeks, in fact month after the original closing date. Both buyers purchased the properties with a very small percentage down. I am usually very adamant that people put 20% down, but in one of these two cases referenced above where the contract had been sitting out there for over 12 weeks the value of the M West townhome had likely increased by $15,000-20,000. That is in fact double what my client brought to the table for closing. Thus it made me step back and think about my perception of equity into a residential deal in a rising market.
This year has been interesting. After making significant capital gains buying and selling last year, I have found the right deals harder to come by. I more recently have been looking into commercial office condos as I suspect I will dip my toe into this realm sometime in the next year. Cap rates on commercial real estate are sill below residential returns in Atlanta but if the economy can finally bounce back there will be appreciation in the commercial market that will easily exceed that differential. Thus when I meet with people these days I have started to discuss my desires for small office space, and I am still looking for someone knowledgeable to talk gym ownership with.
As I type this I finally got my first residential contract back binding for my investment arm. As many of you know I am a big fan of Eclipse (on the more modern side) and the Aramore (on the more traditional side) buildings in Buckhead. Both represent great value with 1 bedrooms starting in the $150k range, and small 2 bedrooms just shy of $200k. Well I am happy that I was just able to lock down an Aramore unit as a cash buy. This building has the top-notch Restaurant Eugene downstairs, and Holman and Finch right next door. It shares the Amenities with The Astoria At The Aramore, and is just a great addition to my condo portfolio.
Much like Eclipes and The Aramore are my favorite moderately priced “values” in Buckhead, my two favorite upmarket luxury values in Buckhead are The Astoria, and Terminus. If I was to sell some of my lower priced properties and/or single family homes I would trade up to one of these.
Bottom line. Condos remain a great investment for the following groups-
-Those who want to stop wasting money on rent.
-Those who want secure investments where unlike a single family home you don’t need to worry about vandalism during vacancy, roof or foundation damage, or people stealing your AC units.
-Those who like myself believe in the prospects of $6.00 oil, enhanced Intown public transportation initiatives.
-Those who understand that there is no new supply of developments, and those who understand that as the economy gets better it is simple supply and demand.
Thanks for taking the time to read the blog. I really need to update all of my building reviews, even the whole area reviews need to be updated as a lot has changed. The Beltline and its affect on Midtown, Poncey Highlands, 4th Ward, Inman Park and Cabbagetown cannot not be stated enough. For my Out Of State followers please look into the following link. Again think “The Highline” in NYC, or “Katy Trail” in Dallas. Walkability when it comes to condos, is the MOST important aspect in Real Estate. The Beltline IS walkability.
http://beltline.org/
I am back in Mexico relaxing in Riviera Maya and Playa Del Carmen July 17-23rd. I will be back in full form upon my return. As always, I encourage anyone interested to inquire with their ideas or questions.
