Villa Rica is a small town to the west of Atlanta. Like many areas around Atlanta, this city, whose name ironically means “rich village,” has been hit hard by the mortgage crisis. Home prices here were rising quickly over the past few years as Atlanta’s real estate market blossomed amid rising home values and a booming local economy. Homeowners in Villa Rica, the site of a gold rush in the early 1800s, found that their homes were an investment that was as good as gold.
All that came to a swift end when the mortgage crisis hit in 2008. Development all but stopped as home sales crashed to a halt. Rising numbers of foreclosures meant that many homes sat empty for months on end.
In my neighborhood on the north side of town, near Wesley Chapel Road, home prices had increased by 30% over the previous ten years. This is a small, quiet subdivision with newer houses that were close to the median price for the area. Almost overnight, the market value of these homes fell by approximately half. A planned subdivision that was being built behind my neighborhood now sits silent. Its roads are completed but there are no houses along them.
For Sale signs went up but brought in few prospective buyers. Most prospective sellers stopped bothering with real estate agents and put out For Sale By Owner signs. For a period of almost a year, we had vacant foreclosure houses on either side of my home. It has only been in the past few weeks that a family has bought one of these houses using seller financing. The other is still vacant.
The credit freeze is an important aspect of the fallen real estate prices. With banks afraid to lend money, it can be hard for many people to qualify for mortgages. Since we have owned our house for several years, as interest rates fell I contacted our loan officer to discuss refinancing our mortgage.
He told me that even though we have excellent credit, a refinance is out of the question because of the declining values of homes. As home prices fell, we lost equity so that, like many other homeowners around the country, we now owe more on our mortgage than our home is currently worth.
The same trend makes it difficult for new homebuyers to secure financing. In sharp contrast to the past decade, most banks are now requiring borrowers, even those with excellent credit, to make a down payment of at least twenty percent of the purchase price of the home. When combined with the crash of the stock market and other investments, this means that many prospective buyers do not have a sufficiently large nest egg to take advantage of the many great real estate deals that exist. The one recent sale in my neighborhood was financed by the seller and did not involve a bank.
Eventually, the economy will begin to grow again and the real estate markets will wake from their slumber. Banks will begin to lend more money and people will once again be able to purchase their dream home. As buyers enter the market, home prices will once again start to rise. For homeowners in Villa Rica and around the country, that day cannot come soon enough.