That is called ‘Replacement Cost’. It is one way to estimate the value of a property, including the structures on it. In most markets we are seeing the current price fall below the replacement cost. It can’t do that forever and here is why.
Supply and demand. Let’s talk about demand first. People are living longer (64.48 years in 2000 to 76.51 in 2008), having babies (GA exceeds the USA in birthrate) and moving to Atlanta and Georgia in general. Georgia is in the top 10 nationally with a growth rate of 1.7% from 2007 to 2008 and a population estimate of 9.6 million people. Most of these people prefer to live indoors so the demand for housing is INCREASING at a good pace.
Supply is the next subject. About 12 months ago most of the financing for new construction dried up. Builders that were not well funded at that time stopped building. If you drive around you will see lots of developed subdivisions with plastic pipes sticking out of the ground. Some call them PVC graveyards. These are indicators that the builders lost funding and had to stop. Subdivision development is on a 3 year cycle. That means that it will take some time to get the construction going again once the need for housing starts increasing again.
We are beginning to see a decline in inventory of resale property. Inventory is measured in months. How many houses normally sell during a year compared to how many are available divided by 12 tells us how many months of inventory we have. 6 months is considered a balanced market or the tipping point between a buyers market and a sellers market. In 2005 we had 4.5 months of inventory. 2006 was 6.5 months and 2007 was 8.9 months. 2008 peaked at 11.2 months but some parts of the country are seeing a significant improvement now with parts of California dropping below the 6 month level. It is said that as the West Coast goes so goes the rest of the country and for housing trends I believe that is true but the numbers alone say we are doing what needs to be done to decrease inventory. Increase demand, decrease supply and you get higher prices.
My point is that we are on what appears to be the leading edge of the decline of supply and that is great news if you are thinking about buying. People like Warren Buffett, Dave Ramsey and Donald Trump say this is the best time to buy we have EVER seen in this country. If inventory declines to that 6 month point again the buyers are going to find it harder to find a great house, let alone a great deal.
There is almost no competition among buyers right now so prices are lower than the replacement costs. You have lots of choices of lots of houses in great shape (your don’t have to buy a foreclosure that has been trashed to get a great deal) and sellers are anxious to make a deal.
I am here to help find great deals and when you hear of someone that is thinking about getting into this housing market please call me (678-231-1578). I can help them find the right house at the right price and it won’t cost them anything for my services because the seller pays my fees. I also have some great inventory myself with prices set very competitively so you can check them out by clicking here.
I am here to help answer questions too. If you want more info on anything about this market please call me anytime. I am here to tell you that what you hear on the news and read in the paper may be true but it is slanted toward the bad and there is lots of good news out there. It all depends on how you look at it. Call me if you need me. I am here to help.
Thanks for listening. It’s a Good Life!!
Jerry W. Robertson
Data sources: National Assoc. of Realtors, US Census Bureau, FMLS Statistics for Members, Kaiser State Health Facts, CIA World Fact Book
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