I received a phone call from a local newspaper yesterday asking for some real estate market analysis. It seems that word has gotten out that I like to crunch the numbers.
Someone had forwarded the reporter a link to an article on CNN Money that listed Atlanta (and mentioned Alpharetta) as one of the six best places to buy a home based on prices expected to rise the most – or decrease the least – in the next 12 months.
How seriously should you take a list like this when Detroit (Farmington Hills) is on the list with you? Isn’t the housing market in Detroit a train wreck? Maybe the wreck has already happened and now they are just cleaning up. After all, Ford did announce today a $100M of net income in Q1, a $382M increase over Q1 last year.
The CNN Money analysis was done by looking at the Metropolitan Home Price Index published by OHFEO and the "fundamental housing value," a measure also called the price-rent ratio which is derived by taking the price of a home and dividing it by the discounted value of the future stream of rent payments you could get for that house. This is an investment based valuation method that says anything over 1 is overpriced (as an investment) and anything under 1 is underpriced. CNN selected metro areas with high momentum and low price.
In selecting Atlanta, CNN singled out Alpharetta as a "typical affluent suburb" and pegged the average sales price at $359,950. I could take exception with CNN that Alpharetta is typical, but that is an entirely different post ;-> Here I want to focus on the average sales price for Alpharetta, which is what the local reporter was looking for, too.
Average Sales Price in Alpharetta for Q1 2008
The average sales price in Alpharetta for Q1 2008 was $384,612. This includes all resale and new construction single family residences. The average for Q1 2007 was $372,895.
The change represents a 3% increase in sales price, but doesn’t tell the whole story. The real story is that in Q1 2008 only 237 homes sold in Alpharetta versus 402 in Q1 2007. That is $63M less sales volume than a year ago.
If you look at North Fulton as a whole, which includes the four cities of Alpharetta, Roswell, Johns Creek and Milton, the numbers show the same pattern on a different scale. [Note: it is a little difficult to separate sales in the City of Alpharetta from North Fulton as a whole because there are homes in Milton that have an Alpharetta postal address and homes in Johns Creek that have a Duluth/Alpharetta/Rowsell postal address, but I did my best based on high school districts.]
In Q1 this year, the average sales price in North Fulton was $423,503 vs. $413,791 a year ago. However, again, that represents far fewer transactions: 474 in Q1 2008 vs 784 in Q1 2007. To most sellers, that is the definition of a buyer’s market regardless of average sales price.
So, while the exposure given Alpharetta by CNN Money is nice to get, I’m not sure that their methodology, as with most "Best of Lists", is anything but hogwash. Yes, we have price momentum. Yes, real estate is priced more affordably to begin with in Atlanta and Alpharetta. But CNN’s methodology doesn’t take into account the inventory that is not selling in this market and the effect that it will eventually have on the overall market. Maybe sellers will just withdraw and wait until price recover. Maybe they can’t wait and will reduce their price to sell. Only time will tell.
CNN Money’s point in the whole story is that Alpharetta is a good place to buy because it has good potential for appreciation. While I couldn’t agree more, because there are some many fundamental growth factors in favor of Alpharetta, the short term prognosis is dicier. Alpharetta real estate prices are increasing; that is, we have positive price momentum which is what CNN Money was measuring. However, you can only take advantage of that momentum if you are able to sell. There were 310 fewer sellers realizing any gains this quarter and a year ago.
Now, on a slightly different slant, if you want to live in one of the skinniest counties in America (Marin County, CA was the skinniest), CNN Money has that coverage for you, too. They actually compared counties based on the body mass of their residents. But what if you have a county with just a bunch of mammoth-sized but lean residents, wouldn’t that skew the rankings? Anyway, you won’t find anywhere in Georgia on that list, that much you can bank on.
Kevin,
I’ve gone to drawing a map search and adding a few other parameters around Alpharetta through the FMLS map search to obtain numbers. There’s nothing more frustrating than trying to obtain accurate data for clients interested in Alpharetta than taking a look and seeing what agents are entering as “Alpharetta”. It makes it very difficult to actually obtain accurate data for Alpharetta because you end up getting a bunch John’s Creek and Milton thrown in the mix as “Alpharetta”. That’s going to throw in areas like Country Club of the South to the east and places like The Manor in Milton. Talk about skewed numbers!
However, like you, I think that the significant part to look at is the actual number of sales and the lack of an increase in pendings that indicate future conditions. It just doesn’t look like we are getting the typical spring “pop” that we have seen historically.
I heard last week in a speech by Johns Creek Mayor, Mike Bodker, that some local municipalities in North Fulton and maybe even Gwinnett and Cobb counties got together with the US Postal Service and asked them to align the zip codes with the municipal boundaries.
The Postal System apparently said: “No Problem…give us five years.”
So, maybe eventually we can get some clean divisions to select properties that are indeed in a specified city and not just in the postal system mailing address.
Hopefully over time, too, agents will learn to properly list their properties in the correct city and not just in the city as referenced in the mailing address. One can hope.
Thanks for the insightful post! I’m curious: is there a way to exclude new homes in the analysis? My gut says that resales are not seeing a 3% price increase – rather, that it’s probably expensive new construction that is skewing the average sold price as higher.
Mr Robs: I’ll have to dig back into the data to pull out the new construction. Some would argue that new construction is a drag on the market and that it is the builders who are slashing prices at the expense of the resale…but i’ll check the numbers and see what they tell us.
One more thing regarding properties having an Alpharetta postal address but not being in the City of Alpharetta: to check if a property is physically located within the city limits, you can go to http://www.alpharetta.ga.us/streetcityweb/
Nice find Kevin, thanks.
Indeed it’s interesting to see a drop in the market yet properties still being as profitable, if not moreso, to sell. I believe your post explains the analysis quite well.