The news is constantly reporting the latest “Housing Market” statistics and trumpeting the ongoing bad news. But the term “Housing Market” itself is functionally worthless. There is no single all encompassing housing market in the United States. Instead, there are dozens of different markets, all very much unique.

 Many of these markets experienced appreciation rates over 40% per year during the boom years. These markets are now correcting and can be best termed as in free fall. But the Atlanta real estate market never experienced this kind of boom. Home values in most of the Atlanta market appreciated at a more typical 5% - 8% per year between 2001 and 2007.

 What we did experience in Atlanta was a massive home building boom and these construction efforts were focused primarily on the mid to high end of the market. The result was tens of thousands of new homes throughout the Atlanta market in the $300K - $1.2 million price ranges. The entire mortgage debacle played out in the construction boom just as it did in much of the nation. Loose lending standards and dirt-cheap money drove thousands of people to purchase homes that they really could not afford.

 Now, we are seeing prices on these homes decline and inventories grow while sales dry up. Prices in the broader Atlanta market are off about 8% from the peak, but that is not the real story. Homes priced at $450K and up are simply not selling. Interest rates for jumbo mortgage programs are sky high (approaching 9% currently) and all of the “no income verification” loan programs are long gone. The simple reality is that higher priced homes are going to have to come down in price before inventories are going to move. The high end of the Atlanta real estate market may take years to correct.

 The Atlanta housing market for homes priced under $450K has remained fairly strong. Sales are slow and prices are certainly not going up but good homes are selling and buyers are able to obtain financing. I believe this segment of the market will continue to muddle through and prices should only decline by small percentages from current levels.

 The segment of the Atlanta housing market that experienced the most dramatic price increases during the economic boom was the low end. Inner city neighborhoods that had for many years been incredibly cheap but plagued by all of the typical inner city issues suddenly were red hot. In many neighborhoods average prices went from $85K to over $300K in a matter of 3 to 4 years! One of the houses that I recently purchased from foreclosure for $38K sold in 2005 for $280K!

 How did this kind of absurd property value appreciation happen? FRAUD. The simple reality is that these houses were never worth the prices they were selling for at the market peak.

 Back in 2003-2006 many inner city Atlanta neighborhoods experienced mortgage fraud schemes on a scale that is almost impossible to comprehend. I had read a good bit about all of the fraud activity that was taking place and various efforts aimed at curbing it during the period this was ongoing. But until recently when I began researching these neighborhoods and experiencing first hand what had been going on I had no comprehension of the scope of the problem.

 Through various schemes usually focused on generating bogus appraisals and then using them as the basis for a new cash-out refinance or home sale flip at a much higher price to a straw buyer, as many as 90% of homes in some areas were ultimately caught up in fraudulent property appreciation. This was a problem that fed upon itself. Lending standards were so loose and money so cheap that very quickly the actual deliberate fraud sales were being used as comparable sale properties on legitimate transactions! This lead to an explosion of home sales and cash-out refinances. Many homes were flipped over and over again at ever-higher valuations.

 Now, the bubble has burst as the vast majority of these homes have been foreclosed on. This is a travesty… and it represents a huge opportunity.

 Make no mistake about this:  These homes were NEVER worth the prices they were selling for at the peak of the market. The people who live in these areas earn median household incomes of around $45,000 per year. They tend to have monthly debt payments averaging around $350 per month. The payment on a 97% loan to value $275K mortgage loan on a 30-year fixed rate at 6.5% is $1,738 per month. Add onto this property taxes and homeowners insurance along with the required private mortgage insurance and the total payment comes to about $2,150. This gives the homeowner total monthly debt payment obligations of around $2,500 per month when their total take home pay per month is less than $3,500. This is a debt to income ratio of over 71%.  There is simply no way this math works.

 Before the recent absurdities in the mortgage and real estate markets (coupled with all of the fraud) lead to the explosion in home prices, homes in these areas sold for a median price of around $110K. With values at that level, the exact same equation above gives us a final debt to income ratio for the median buyer of 34%. That is right in line with historical norms and conforming loan program underwriting requirements. Before the boom, the market had worked effectively to ensure home prices were properly aligned with buyers’ ability to make their mortgage payments.

 The incredible scale of this problem is now literally burying the mortgage lenders who are swamped in these foreclosed properties. I cannot overstate what is happening here. I have researched neighborhoods where over 80% of the homes are currently bank owned foreclosures. I have been down streets where for each home that appears occupied there are 10 homes boarded up and vacant. I have attended real estate auctions where over 700 foreclosed homes were sold at capitulation prices over a 4-day period of time. I have looked at dozens of homes where the fraud is glaringly obvious as the “renovations” were clearly done for photographic appraisal purposes only. The stories go on and on.