I’ve noticed, as have we all, that the unemployment numbers are rising. Already, we are hearing about a booming foreclosure market, and now people who may have been scraping by are losing their jobs. Wow.
What is going to happen next? I have no idea, so I went to my insider source, Mr. Developer, to find out.
Big Al, the gal: As people continue to lose their jobs, I assume the number of foreclosures will increase. What will this mean for the housing market?
Mr. Developer: Well, the higher job losses reported will have a psychological effect on the population at-large. It is more negative news that makes people less likely to spend because they feel they need to dig in and save their money for hard times.
This will lead to slower sales in housing as well as slower sales on discretionary items like cars, trips, luxury goods, etc. The effect on housing downtown will be even more price discounts.
With The Roosevelt, The Brockman, The Chapman and 655 Hope all about to open that will flood the market with more supply and lead to lower prices.
Big Al, the gal: What will this do to developers and their projects downtown?
Mr. Developer: In addition to lower prices mentioned above, some of these projects may find they have to convert to apartments just to get some tenants and some cash flow. This will lead to more rental units and put downward pressure on rents downtown.
Big Al, the gal: Will buyers benefit from this or is it such a bad situation that everyone will lose?
Mr. Developer: Future buyers will benefit, but they need to wait to buy further into the future. Buyers today will experience prices lowering after they buy.
Big Al, the gal: Why?
Mr. Developer: With more supply coming on the market in a recession, it is just going to take a long time for all of the unsold units to work their way out of the market.
Big Al, the gal: I have a friend who is a real estate agent in Atlanta. She said this down market is simply weeding out the agents who didn’t want to work. Is the same true for developers? Will real estate companies go out of business?
Mr. Developer: Some will. I’ve heard of some residential developers who’ve filed for bankruptcy or loan workouts. They can come back again when the market gets stronger, but for now they are in trouble.
Big Al, the gal: Why? How?
Mr. Developer: The projects they built were based on selling the homes at certain prices. Anything lower than those prices and they start losing their initial investment in the project.
They then must at least pay off the construction loan, but in some cases the prices drop so low that they can’t even pay off the lender.
Big Al, the gal: Do you have any advice for prospective home buyers? For renters?
Mr. Developer: Yes, rent for now and save your money.
Thank you, Mr. Developer. As usual, you’ve clarified a complex concept.
Photo by mischaka269 on Flickr
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