Is This The Bottom?
Mixed Reviews for Single Family Residential in April and May of 2008.
In May, average sale prices in Fayette County, Georgia, ended at a low point just below their February 2008 levels, and Clayton County was at a new low just below their April 2008 level. Henry County was up a fair amount.
While overall, the local market continued its downward trend, graphed, it appears much different than 2007. Are we at the bottom yet? Out of pride, I hope so. I had been predicting the local housing market would hit bottom in spring or summer of this year I don't like to be wrong, but the number of house sales occurring is disturbing.
Number of Home Sales Way Down too!
During our investigation this time we compared the number of sales which have occurred each month during 2006, 2007 and 2008 (as reported by GaMLS) in Clayton County, Fayette County and Henry County. While we were not surprised by the numbers, they did give us pause.
For example, in the month of May 2006 there were 616 detached single family residential home sales in Clayton County. During the same month in 2007 there were 571 such sales. 2008 yielded only 229 such sales. Fayette County and Henry County experienced similar reductions in the number of sales. All three counties are experiencing sales levels of 30% to 50% of what they were in 2006, with the greatest decline occurring since the first of 2008. Of course, the numbers in Clayton County are skewed by the school system problems.
For the last couple of years, May has been the annual high point in the number of sales occurring. In Clayton and Henry Counties this year it is the low point thus far. The question is will this low number of sales translate into even lower sale prices in the months to come?.
Construction and Development Notes
We also caught wind of two more fair-sized local developers reportedly filing for bankruptcy protection. We do notice a few new homes being built here and there, but primarily in very low volumes.
Nations Building News (NBN), the publication of the National Association of Home Builders (NAHB) reported on June 2, 2008, that lenders are now demanding that a high number of builders and developers pay down their loans and/or increase their collateral. Although this helps reduce the lender's exposure it may also increase foreclosures if a builder or developer is unable to produce the necessary cash or collateral.
HousingEconomics.com, a service of NAHB, reports that single family residential building permits year-to-date as of April are down 50% from last year's numbers for the State of Georgia.
Commercial is in a Stall Pattern
From the commercial end, sales are occurring but at a slower pace. We do note some continuing softening of the marketplace. This is readily evident in the number of new and almost new strip retail centers sitting vacant or almost vacant. A few years ago they would have filled up in a heartbeat.
Like with residential, the commercial market stalls before it drops. Prices remain stable for six months or a year as vacancies increase until the owner is faced with lowering the rents to attract tenants. In response to the higher vacancy rates and lowering rents investors begin demanding higher capitalization rates which also depresses sale prices.
Lower rents and high vacancies reduces income and sometimes leads an investor into default as such properties are often over-leveraged. The resulting resell of a foreclosed commercial property further serves to depress the commercial marketplace. The result is a downward spiral very similar to the one faced by the single family residential marketplace.
C-Store Invasion
Surprisingly, we have noticed a significant number of new c-stores/fueling stations under construction. With the high price of gasoline you might think this would be anticipated... more folks trying to reap the windfall profits made by the oil companies. But that is far from the truth. The percentage profit earned by oil companies are no greater than most other businesses of similar size, although it is a lot, and I mean a LOT of dollars.
Station operators make very little off each gallon of gas they sell. (If you question this statement, note that CoStar reports that Uni-Mart/Choice Gas C-store operators just filed for bankruptcy protection citing, in part, the high cost of fuel as the reason for their lack of financial performance.) Most C-Store operators will tell you their money is made off the items sold inside their convenience stores. Last year, one regional chain store manager told us that well in excess of 50% of the profits earned from her store were earned from the sale of tobacco products alone.
With the increasing gas prices many c-store owners are reporting a corresponding drop in inside sales and a disproportionate drop in overall profits. People only have so much money to spend and when faced with deciding between getting to and from work verses getting candy bars and Cokes for the kids there really is no choice.
Prices for Small Multi-Family Appears to be Holding, for now.
According to GaMLS, there were 48 sales of multi-family properties (typically small multi-family like duplexes, triplexes, quads and small apartment buildings) in Clayton, Fayette and Henry counties between January 1st 2007 and May 31st, 2007. For the same period of time this year there has been only 10 such sales.
Even with the reduced number of sales, it appears that Gross Rent Multipliers (the relationship between rent and sales price) are running about the same as they did last year. But, we do not expect that to hold since there are in excess of 80 such properties now on the market in the tri-counties.
In regards to larger apartment communities NAHB reports that confidence in the rental market is weakening and that demand was lower for all classes of apartments in the first quarter of 2008, but in what appears to be a contradiction NBN reports that "Outlook for Rental Housing Strengthens as Condos Sag". So, the news is mixed - even coming from two arms of the same organization.
HousingEconomics.com, a service of NAHB, reports that multi-family residential building permits year-to-date as of April are down 62% from last year's numbers for the State of Georgia.
We have noted some very high apartment land sale prices of late in Henry County. We will continue to monitor this closely.
Summary:
The detached single family residential (houses) market is really suffering However, although the number of sales are extremely low the residential market appears to be starting out better than last year in regards to trends, at least in Fayette and Henry Counties. These two counties do not show as severe of a downward trend as they experienced last year, but that could change.
It would be interesting to know how Clayton County would have done were it not for the actions of the Clayton County School Board (elections coming soon).
At this point my major concern with the house marketplace is the low volume of sales. Will this translate into lower prices in the future?
The commercial market is well past its peak, having stalled and began its downward spiral. We shall see where that leads.
The multi-family marketplace is teetering in stall. Small multi-family properties still retain their value although there are few sales. Values of larger properties are still holding their own but the financing crisis is expected to take its toll.
As we have said in recent months, with single family residential it remains a strong buyers market. With most other property types it is quickly becoming a buyers market. If you are wanting to buy a house, residential lot, or acreage tract, buy NOW. If you are considering selling anything else (with a few exceptions) place it on the market TODAY at a reasonable price or plan to wait several years.
Chris on 2008-06-03 @ 07:55 PM EST [link]
