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Valuation Blog 5.28.2013
Following the Footprints of Institutional Investors in Atlanta Real Estate: Part 2 of 3, Atlanta Specifics

In Part One of this series we looked at housing market signs that signal the arrival of hedge funds in a market.  Today we will explore particular communities within the Atlanta market.

The large scale core-based statistical areas (CBSAs) that make up most market reports can’t answer these questions.  They are simply too big and cover too much territory to detect buying trends and provide an understanding of how they are affecting the micro-market level where consumers buy and sell homes.  Atlanta’s diversity, not only in its neighborhoods and employment patterns but also in housing types, prices, and distress sale properties, make it a difficult market to understand without starting at the micro-market level.

It’s possible to track the activities of hedge funds using local market data at the ZIP code level.  Home Value Forecast (HVF) is built using numerous data sources including public records, local market MLS and general economic data.  HVF has data for the top 750 CBSAs as well as ZIP code level data for approximately 18,000 ZIPs.  Among the arsenal of metrics HVF offers is price data by living space, which provides a truer picture of relative value than price per unit alone.

Analyzing Micro-markets

Atlanta’s Fulton County, a large urban area encompassing two ZIP codes (30310 and 30311), demonstrates these trends over the past 12 months, signifying a great deal of hedge fund activity.  These two ZIPs encompass a number of neighborhoods stretching west from Interstate 95 to Interstate 285 and south of Interstate 20.

The 30310 ZIP code includes the Adair Park, Atlanta University, Capitol View, Mechanicsville, Pittsburgh, and West End neighborhoods.  The median annual income in this ZIP was $25,892 in 2010, compared to $48,448 for the state as a whole, and 42.1 percent of residents were below the poverty line. The median house/condo value is $124,573 compared to $162,400 statewide. [1]

REO sales have fallen nearly 60 percent in the past year, while overall foreclosure sales have stayed steady.  The REO discount per living space has also dropped dramatically, from 48.1 percent to 29.6 percent in the first quarter of 2013.  The discount decline began in the second quarter of 2012 and has been falling steadily since, a time period that corresponds to the entry of hedge funds into the market.  This rapid, dramatic marketplace change can only be attributed to hedge fund activity.

The adjoining 30311 ZIP code is home to the Cascade Heights, Greenbriar, Harland Terrace, Southwest and Westhaven neighborhoods.  In 2010, median household income was $37,056, compared to the state average of $48,448.  Some 31.7 of the population was below the poverty line. Median house value was $140,803 compared to $162,400 statewide.

REO sales plummeted from 23 to 7 per quarter over the past year while foreclosure sales remained relatively steady.  While the average sold price of a normal home has actually declined 13.8 percent in the area and short sale prices have fallen 21.6 percent over the past four quarters, REO prices have increased 17.3 percent.  The decline in REO sales is driving up REO prices faster even as overall prices decline. REO prices had been declining until the fourth quarter of 2012, when they suddenly soared in the first quarter of this year.  The REO discount per living space actually went positive in the first quarter of this year; in other words, buyers are paying more for REOs than normal priced homes.  Short sale prices in the ZIP code have also exceeded normal homes for the past two quarters by over 20 percent.

reo percent discount to regular average sold price per living

In the first quarter of 2013, for the first time since the end of the housing boom, the median price of REOs expressed in terms of living space actually was higher than the median sold price of regular homes in Atlanta’s ZIP code 30311.

The similar patterns in these adjoining areas, which since 2011 have been a major source of Atlanta’s foreclosure supply, suggest that last year hedge funds purchased enough foreclosures at the pre-REO  level to reduce the supplies of REOs available for sale and to drive up prices for all distress sales.  The same phenomenon has occurred in Sacramento and in Phoenix.  Only large hedge fund purchases of pre-foreclosures and bulk sales could account for the dramatic change in these micro-markets.

Other Atlanta neighborhoods have probably provided large numbers of foreclosures to hedge funds in recent months, but the micro-market footprints to date have been more difficult to follow.  The neighborhoods of ZIP code 30315 in Fulton County, which includes parts of East Point on the west side of Interstate 85 as well as neighborhoods east of 75 like Carver Homes and Peoplestown, have been major sources of foreclosures.  As in the area discussed above, REO sales fell significantly last year, from 33 per quarter to 20 while overall foreclosure sales have remained steady.  However, unlike the areas in West Atlanta, REO discounts have not decreased but increased over the past year, from 26.2 percent to 39.3 percent.  The attractive discount will certainly invite future investor activity.

In Part Three of this series we will reflect on lessons that can be learned from the Atlanta market.