Dan Forsman

Tuesday, 26 July 2005 13:42

A (safer) investment

Thousands of newspaper and magazine column inches have been used to paint a gloomy future for real estate in this country. Reporters and experts alike have warned of a real estate bubble burst and a real estate market decline.

But just the opposite is happening in the metro Atlanta real estate market. Because of real estate’s ability to outperform the stock market in recent years, it has become a viable and increasingly popular investment alternative.

What this means to Atlanta residents is that any current real estate owned will continue to increase in value at a rate above most stock market returns. The national average for the annual increase in home values is 7.8 percent; in Atlanta, it’s around 4.4 percent and rising.

As a real estate company owner, I have a vested interest in keeping a close eye on the economy and anything that will affect the real estate market. What I see is a growth in second home and investor properties that now makes up 8 percent to 12 percent of the national home market. Historically low interest rates and a greater selection of mortgage alternatives are another positive influence on investing in real estate.

Real estate ownership offers tax benefits, with mortgage interest being tax deductible, and this is also true for second home mortgages.

Many people have pulled dollars from the stock market and invested in real estate because it is offering a better return. With Enron, the Sept. 11 attacks, a stock market posting flat returns for the last several years and 401(k) plans that are falling far short of expectations, the American public is looking for a better alternative.

As people have been disillusioned with the stock market, the mortgage industry has made money available for lending through low rates and creative loan programs. The demand for housing continues to exceed everyone’s expectations.

Real estate bubble talk is being driven by the increase in the average sale prices of homes in certain markets. Prices in real estate markets are affected by supply and demand, accounting, in part, for these drastic increases in home values. Increased construction cost per square foot to build new homes is another factor driving the increase in average sales price. Supply and demand is also creating an excellent list-to-sales-price ratio in Atlanta of around 95 percent.

Projected growth in metro Atlanta will also affect the real estate market. The Atlanta area expects to add 2.3 million people in the next 30 years. This growth will fuel both demand and supply, as well as have a positive effect on the continued growth in sales price.

In summary, there is no impending real estate bubble about to burst over our collective heads. Instead, real estate sales are creating a healthy and diversified economy. One in three jobs today is somehow related to the real estate industry. Industry sales have, collectively, helped maintain the economy during the aftereffects of the Sept. 11 tragedy.

If anything, we are positioned to have an even better real estate market as people recognize real estate as a safer investment. What this means for those desiring to be investment-savvy or hoping to diversify your investment dollars, is that real estate is an excellent investment alternative.

DAN FORSMAN is president and CEO of Prudential Georgia Realty (www.PrudentialGeorgia.com), a 1,300-plus agent company with 21 locations in metro Atlanta and North Georgia. A graduate of the University of Georgia, Forsman is a CPA and served as 2003 president of the Atlanta Board of Realtors. In 2004, he was named Realtor of the Year by the Atlanta Board of Realtors. Prudential Georgia Realty is the tenth largest Prudential Real Estate affiliate in North America, selling $2.3 billion in real estate in 2004. Reach Forsman at dforsman@PrudentialGeorgia.com or (770) 992-4100.