We see sharp adjustments every ten years when the census is held.  The graph also shows that the economy is no where near being healthy again.  Even with all the good news the media is feeding us, we need to be cautious.

2013 Unemployment Predictions For Atlanta

Unemployment numbers are cyclical.  The greater Atlanta area has shown a consistent decrease in the unemployment rate over since June 2012.  I expect this to stop in the first quarter of 2013.

I think this will happen for a couple of reasons.  First, all the good news in the economy will motivate people to try to find a job again.  This will increase the total labor force and increase the Unemployment numbers.  However, this is a good thing.

Temporary workers will also lose their jobs because the holiday season is over.

Conclusion: Long Term

I expect the economy to continue on its current path of growth.  My bold predition for 2013 is that unemployment will be around 7.0% in the Sandy Springs and Marietta are by December.  The city of Atlanta will follow and will have an Unemployment number in the high 8% (Currently around 10%).

This is consistent with many other economic indicators across the economy.  And Further evidence of an improving economy.

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2) Residential Investment: Last year was the first time Residential investment (RI) made a positive contribution to GDP since 2005.  RI consists of investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales.  RI is a leading indicator for the economy.  It is expected that RI will be modest in 2012, how much will it increase?

Most experts in the housing industry expect residential investment to increase in the united states.

See marketwatch’s thoughts here 

The reason for this optimism is that as homes hit an all time low in prices, people who can get mortgages will start to buy homes again.  This open up lots of opportunity for investors.

Looking back to 2011 we see that RI has increased.  I expect this trend to continue into 2012.

However, this all depends on the strengthening of the economy and housing market, which has been anything but predictable.

As long as jobs continue to increase I expect RI to top last years highs.

The other day I posted some questions for 2012.  I am going to go through them and add some predictions and thoughts for each question.  Also look into becoming a Real Estate Mogul.

1) House Prices

How much further will house prices fall on the repeat sales indexes (Case-Shiller, CoreLogic)?  Will prices bottom out in 2012?

There is not way to precisely know “normal” house prices.  Changes in local house prices depend on supply and demand.

Under the assumption that there is no perfect measure of house prices we will look at the three most relevant statistics.  1) Real House Prices, 2) House price to rent ratio and 3) Months of Supply

Real House Prices

The following graph shows the Case-Shiller Atlanta house price index.  In real terms we are back to late 1999 levels prices.  The index is at a post bubble low.

I do not think that real prices will fall much below the ‘98 levels.  In the areas of Atlanta with increasing population house prices will increase slightly faster that inflation over time.  So we should start to see an upward slope in real prices in those areas.

However, areas which are experiencing a high level of foreclosures will continue to drag down the market as a whole.  Over the past few months we have start to see a decline in the number of foreclosures.  This is not expected to continue and many experts predict that we will see a surge in the first or second quarter of 2012, see distressed house sales for more.

Price-to-Rent

In 2004 Fed Economist John Krainer and reasearcher Chishen Wei wrote about price to rent ratios.  Kainer and Wei use a slightly different data set then I have, but it gets the same point across regarding housing prices.

Here you will find a Price to Rent graph from 2001 to August 2011.

Case-Shiller Price Index to BLS Owner Equivalent Rent

I would expect to see another 10% drop in this graph.  This could happen from a further decrease in home prices or the continued increase in rent.  (recent reports show increases in rent.)

Months Of Supply

This final graph shows existing home months of supply in the Atlanta market according to the FMLS.  Months of supply correlates the percent price change each month.  When we have a high months of supply we generally see prices decreasing.  Atlanta currently has slightly above 7 months of supply.  A healthy housing economy has around 7 months of supply.  If the months of supply remains constant we should see a the housing market recover sooner than expected.

The one issue I see effecting this is increase in foreclosed properties on the market.

My Guess:
I think we will see prices drop another annually 5% in 2012.  I think that house prices will bottom out in 2011, but house price to income will continue to decline.

1) House Prices: How much further will house prices fall on the repeat sales indexes (Case-Shiller, CoreLogic)?

2) Residential Investment: Last year was the first time Residential investment (RI) made a positive contribution to GDP since 2005.  RI consists of investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales.  RI is a leading indicator for the economy.  It is expected that RI will be modest in 2012, how much will it increase?

3) Distressed house sales: Foreclosures undoubtedly have a major effect on the economy.  The “foreclosure gate” issues in 2011 decreased quantity.  Will foreclosure activity increase in 2012?

4) Economic growth: GDP growth in 2011 was positive but below trend because of all the unexpected shocks.  There are many downside risks coming into 2012, will the economy grow in 2012? Or will we enter another recession.

5) Employment: The Atlanta economy added about 23,700 thousands payroll jobs in November 2011. This is huge, how many payroll jobs will be added in 2012?

6) Unemployment Rate: The unemployment rate is still elevated at 9.2% in November.  The civilian participation rate has increased to the November 2006 level of around 2,689,400, this is still slightly below the 2007 peak.  What will the unemployment rate be in December 2012?

7) Local Government: The state government was a drag on growth in 2011.  How will the budget issues look at the end of the year.

8) Inflation: Will the inflation rate rise or fall in 2012?

From October 2010 to October 2011 home prices have fallen 11.7%.

This is very scary when compared to the rest of the United States.

David Stiff from S&P’s Housing blog, (S&P put out the Case Shiller Report), said that he attributes the fall in housing prices to a surge of foreclosure sales in those months.

Most of these sales happened to occur in lower price brackets.  These are areas where almost all of the homes which are sold are foreclosed homes.

Looking at other metropolitan areas it is not uncommon for a massive drop in the case shiller price index to follow a significant increase in REO (foreclosure) sales

More information can be found at S&P’s Housing Blog

We can interpret this in two ways.

First, we can be optimistic and say this is a sign that the REO (foreclosure) inventory is quickly getting eaten up as more investors enter the market as they see a bottoming out of prices.

On the other side of the coin, this could be a result of the banks wanting to clear inventory for a massive release of new foreclosures.

However, you decide to look at it, now is the time to purchase a discounted home.  Either homes have hit a bottom, or we are about to see an increase in the homes you can select from.  Allowing you to get a home which better fits your needs at a great price.  If you are interested in seeing what is out their, send me an email at max.zeh@gmail.com

http://www.housingviews.com/2011/12/08/three-markets-hit-new-lows-in-september/

Atlanta was one of three markets to hit a new low in September.

Home prices in Atlanta have hit may 1999 levels.

Another interesting statistic to look at is the price gain since 2000 compared to the ammount lost since the peak.

This table can be looked at in two ways.

First, that the housing market in Atlanta is now in worse condition that in 2000 and Atlanta has been more negativly affected by the Housing crisis than other cities.

Or, that Atlanta is further along in the housing recovery and is set to start turning around sooner.

If we look at the numbers right now things are looking relativly good.

Unemployment

The enemployment numbers around most of America have shown imporvement over the past few months.

In Atlanta unemployment droped from a high of 10.5% in June to below 10% in October.

http://www.bls.gov/eag/eag.ga_atlanta_msa.htm

Yes, the unempoyment numbers are not perfect.  They do not count all the people who have given up hope and are no longer looking for a job.

We are not seeing massive job gains, however we are also not seeing many layoffs.  The job market has stabalized.

GDP is remaining stable at 2% annual growth.  This is not spectacular, but it is also not inflated from easy credit or a housing buble.

Household incomes are down.  But savings rate is up.  Showing that people are living with in their means and making good choices.

All we have to worry about now is the size of the public debt, the failure of Europe, corruption on wall street and the inability of our government to agree on anything.

I thought it was interesting and I should share with you.