Metro Atlanta is running out of new-home inventory

In the February 5-11, 2010 edition of the Atlanta Business Chronicle, Lisa Schoolcraft wrote that Metrostudy, Inc.’s recent release of a market study illustrates how the metro Atlanta housing market will run out of new home inventory within a year.

In 2009, there were 4,000 new homes started and 14,000 sold. At the end of 2009, there were 13,438 units of new-home inventory in metro Atlanta. Seven out of the top ten top-selling residential communities were in north metro Atlanta. Consequently, the pending shortage of new homes is going to be more pronounced in this area.

New home prices could rise, and rise sharply. Because of the financial condition of most banks, construction lending is non-existent. As a result, builders will not be able to increase supply easily or readily. So new home buyers will be clamoring for an ever-shrinking supply of new homes, bidding up prices.

Existing home demand will increase as a result. New home buyers are going to be forced to seek an alternative in existing homes. This demand will bode well for clearing supply of foreclosed homes on the market. Because of the countervailing price reduction of foreclosures, it is unclear what values will do on the net for existing homes, but the demand created by the shortage in new homes will provide valuation support to the existing homes sales market.

Lastly, it is unclear what the end of the Federal Reserve’s purchase program for residential mortgage backed securities will do to interest rates. It has been documented that rates will rise though; it is just unclear by how much. Moreover, the same is true for the tax credit given to home buyers. It is slated to go away around April 1, 2010.

While I sound more like an economist than a real estate lawyer, understanding the economic and financial conditions that underpin the legal work I perform for clients is essential to understand whether or not there will be any demand for my services. So pardon my professional deviation; now, back to work.