What is a housing bubble? Economists and journalists use this term to describe a scenario in which housing prices increase year after year until the bubble bursts and prices take a dive, thus affecting the appreciation and equity consumers have in their homes.
According to the Coldwell Banker Universal Database, through mid-year 2004, average sale prices in the Atlanta area have increased compared to the same period in 2003. For the 15-county Atlanta area, the overall increase for resale single-family homes was 4.1 percent, with a mid-year average sale price of $218,750; for new single-family homes, the average price was $248,840, an increase of 5.9 percent compared to last year.
The database also reveals that average sale prices vary significantly by location. At mid-year 2004, the highest prices were found in north Fulton, where resale homes had an average sale price of $380,350; new homes averaged $605,200.
The least expensive average sale prices were found in Clayton County, where resale homes sold at an average of $122,300 and new homes sold for $149,000.
Location matters nationally
The National Association of Realtors (NAR) tracks median resale single-family home prices for metro areas around the nation. Among these, Atlanta has an attractive, affordable typical resale price.
Highest median resale prices as of the second quarter 2004 are in California: San Francisco, $647,300; San Diego, $559,700; and Los Angeles, $438,400. The Northeast has the next tier: New York City, $392,200; Boston, $366,500; and Washington, D.C., $352,400. Many of these markets have experienced double-digit price increases several years in a row.
In the south, Atlanta comes in at $156,800; Orlando, $170,100; Tampa, $158,200; Dallas, $141,000; and Houston, $139,200.
Many housing economists list several reasons why this bubble theory is not relevant.
* Strong demographics in key groups -- baby boomers, echo boomers, Hispanics, singles
* Historically low interest rates
* Strong consumer confidence in housing and the economy in general
* Real estate provides tax advantages as well as a place to live - unlike commodity investments.
* Since NAR started gathering statistics in the late 1960s, the national average price of a home sold has never gone down year to year.
* In Atlanta, the largest residential construction market in the United States, demand is in balance with supply.
After job losses in 2002 and 2003, employment in the Atlanta metro area is recovering, with June 2004 employment up 27,100 jobs compared to the same period last year. Forecasts for this year by local university economists show an annual increase of more than 30,000 net new jobs, followed by annual increases in excess of 50,000 in 2005 and 2006.
Among other issues:
* Consumer sentiment rebounded from its low of 74.5 in the first quarter 2003 to 90.4 for the second quarter 2004, and is above the national index.
* Web site traffic to ColdwellBankerAtlanta.com averages 260,000 visitors each month, up 6 percent from last year.
* The Coldwell Banker Builder Developer Services' Subdivision Traffic Quality Index is tracking on the high side of normal after two down years.
* Even though most local economists expect interest rates to slowly rise over the next 18 months, mortgage rates may still be affordable. Look for a shift to mortgage instruments other than fixed rates.
* Expect to see significantly higher new construction prices due to regulatory, land and material cost increases. These higher prices may increase the spread between new and resale homes and have a positive effect on the absorption of resale homes.
Clearly, housing and the economy are linked. All indications are that in Atlanta, we are in for a period of healthy and sustained growth -- jobs, relocation and housing.
Dick Hearin is senior vice president for Coldwell Banker Builder Developer Services, a division of Coldwell Banker Residential Brokerage in Atlanta. His research and guidance provide the basis for marketing, concept and design expertise for many builder/developer clients in the metro Atlanta area. Coldwell Banker Residential Brokerage includes 27 real estate offices as well as specialty divisions - The Condo Store, Builder Developer Services, Commercial and Corporate Relocation. Additionally, its affiliated companies offer mortgage, title and closing services. Coldwell Banker Residential Brokerage is a member of the NRT family of companies. NRT Inc., the nation's largest residential real estate brokerage company, is a subsidiary of Cendant Corp. For more information call (404) 705-1500 or visit www.ColdwellBankerAtlanta.com.