By Chuck Fister
Special to The Citizen

Last month in The Citizen, I discussed how Fayette County listings above $300,000 were feeling stressed. Today I am sorry to report that total sales of Fayette County single family homes took a nose dive in July – falling by 17.6% from the June sales rate. The market segment taking the largest hit was listings between $200,000 and $300,000. This is the “sweet spot” in Fayette County, and July sales fell by 35.8% from June.

The only market segments seeing sales growth were the $400,000 and up markets. But, those sales comprised only 28.6% of July Fayette County sales, and it appears that some of the performance may simply be due to the backlog of under-contract listings finally going to sold status. Looking ahead, August sales data may not be much better. Listings that are under contract as of August 1st were at a level that was 3.1% less than that on July 1st.

This sales malaise is shared with surrounding counties. For example, Clayton County experienced a 20.6% decrease in July over June sales. Henry County is down 5.2% in July over June sales. Coweta County is showing some renewed vigor with a 3.9% increase in sales for July over June, but this comes off a bad month in June, where sales had fallen 9.5% over May.
Much of the real estate market is driven by current owners “buying up”. Home owners will sell their existing homes and buy larger and more expensive homes for various reasons. In order to perfect that move up, these owners must sell their existing homes. The whole upward shift starts with the lowest price level of homes - the so-called starter homes. Those houses have to sell in order for the next tier of houses to sell. In other words, there is an upwardly mobile dominoeffecton house sales.

There is a large and growing problem that affects the lower priced markets in particular. Sellers who are most likely to be “buying up” are faced with multiple problems related to the multitude of vacant, investor-owned homes, short sales and foreclosures on the market today. In some of the surrounding markets that I track, these offerings make up significant percentages of theavailable inventory, as well as recent sales. Most of these offerings are distressed - either physically or by circumstance; often both.

Sellers who would likely be purchasers of greater valued homes are finding that market saturation of distressed and under-priced listings are eating into their ability to sell their homes for market value. Why? One of the obvious reasons is that distressed properties tend to bring down the value of neighboring properties because they taint the perception of value in a neighborhood. Second, many of these distressed properties will be purchased by investors for the purpose of “flipping” or rentals. Large numbers of non-owner occupied or otherwise vacant properties will destabilize a neighborhood and also reduce its perceived value.

A more significant problem is that home values are falling in real time simply because appraised market values are being dragged down by the typically lower sales prices of distressed properties. The law requires professional appraisers to consider these distressed sales as comparables for valuing purposes. It only matters somewhat that these distressed properties are often neglected, abused, vandalized and often purposely damaged by their previous owners. This is a paradigm shift in the valuing model. Rather than owner occupied homes establishing value for distressed properties, it is the distressed properties that are now establishing values of owner occupied homes.

The devaluing issue begets another problem because most real estate purchases are financed. Lenders require a professional appraisal to establish fair market value in order to set loan limits. If the house does not appraise at the sales level, then the borrower will have to bring more cash to the closing table or the seller will have to agree to accept less, and this may cause a sales contract to fail.
To affect a sale in this price depressed market, most sellers are walking away with much less equity to apply to an up-sale home, or even carrying back unsecured debt. Many would-be sellers are entering the selling cycle when they have not realized significant increases in market value, or are realizing decreases, due to these vagaries of the market. Often this means that there is not enough equity to cover the transaction costs of selling, let alone position them financially to buy up. Those who are affected by these anomalies may not be back into the purchase market because they lack the buying power under today’s raised lending standards and may be forced to downsize their housing requirements and ownership goals or even enter into rental arrangements.

What this means for sellers in the upper price ranges is that buyers are not carrying forward a lot of net proceeds from the sale of their existing home. Lending standards have also changed, making it difficult or impossible for some buyers to purchase because they cannot qualify. In other words, the sale of distressed properties affects all of the owner occupied homes that are on the market because distressed home sales disable the potential buyers of upper price homes.

This gets back to my original question. Is selling your house a goal or a dream? Well, it is a dream if you are holding onto the belief that your home has a market value that is based on the valuing methodology of yesterday. From a buyer’s standpoint, that may have worked last year or the year before, but it doesn’t work today. Buyers are bargain hunting and you have to play their game. If selling your house is a goal, then you have to strategize how you are going to do that. You have to price and present your listing to be the listing that is going to sell.

If you have any questions or comments about this article or would like a copy of my data analysis and listing performance evaluation for Fayette County, Clayton County, Coweta County or Henry County, please call or email me. If you have a need for specific market information, please call and I will attempt to accommodate you.

Chuck Fister, REALTOR
Direct: (678) 587-3425
Email to: chuck.fister@metrobrokers.com
Chuck Fister is a REALTOR, real estate consultant and sales agent with Metro Brokers/GMAC Real Estate and works out of their Peachtree City Office.

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