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There’s that word, “aberration,” again at the bottom the story at left. As we noted above, it’s being used more and more to describe evidence of a weakening Atlanta real estate market. Apparently, the heavy hitters are so confident that the fall off in demand for space is temporary that they are launching the city into the global skyscraper boom covered in the Socio Times entry of December 21 and in the latest issue of The Elliott Wave Financial Forecast. As the cranes shoot into the sky, we see very clearly how huge the gulf is between the optimism captured in this The Wall Street Journal article and the prospects for the local real estate market. 

With the condo market “bumpy” and just 70% of office space in use, it’ll take the anticipated influx just to use up what’s already here. What the people who live here already are wondering, however, is “Where are two million more Atlantans going to work?” Other than the possible exception of real estate development, there’s no real engine for future job growth. Ford and GM are closing plants. Delta is in bankruptcy and under threat of a corporate takeover. Coke is stagnant, and Walmart is being denied access to just about any plot it doesn’t already occupy. New towering mini-cities sound great because they eliminate the dreaded commutes, but any success can only come at the expense of existing offices, shops and homes. If they actually make it to completion, these new towers will have great views of a hollowed out city.

December 2006, EWFF
The enormous power of the unfolding deflation is now visible in the housing sector. The median U.S. home price fell to $221,000 in October, a decline of 3.5% from a year ago, the biggest year-over-year price decline on record. It marks the third straight month that home prices have fallen compared to the same period a year ago, the longest stretch on record. The chart [not shown] of homeowner vacancies shows the corresponding and totally unprecedented rise in excess housing stock. In the western U.S., whole subdivisions are already so blighted by walk-off homeowners that the president of the Federal Reserve Bank of San Francisco describes them as the “new ghost towns of the West.” In Phoenix, where a year ago developers were raising prices $1,000 to $10,000 a week, the number of unsold homes has soared to 46,000. “The striking contrast tells the tale of a housing bonanza turned bust,” says the New York Times. “It’s finally catching up to me,” one former homeowner told the Denver Post. “We have no place to go and no money.”

Another persistent fairy tale is the belief that any decline will be confined to certain regions and sectors. Headlines like these tell a different story: “Real Estate Slump Tough on Midwest;” “Florida’s Housing Hurricane;” “New Jersey Home Foreclosure Indicator Rises 44%;” “California Home Sales Plunge.” The real estate collapse is clearly spreading. With prices of REIT indexes extending to new heights on November 24, the consensus is that commercial real estate will “cushion the impact of the housing slump.” But it is only a matter of time before every type of property gets pulled into the deflationary spiral. REITs are not up because of real estate, they are up because of the continuing stock mania. One sign of an imminent crack is the sale of Equity Office Properties Trust in the biggest leveraged buyout in history. The firm is the largest office building owner, with 585 buildings and 108.5 million square feet of space in major U.S. cities. Some analysts criticized the firm’s principal, Sam Zell, for selling too low, but it looks like a cagey exit to us. As EWFF noted in February 2000, the biggest deals tend to happen near peaks because those with the most knowledge of their industry are generally willing to surrender control only at such times.