Last month I started my note stating that I am going to start my monthly letter optimistically, but end it on a
cautious note. I believe we are now heading into a definite downturn or at the very least a slow down in our
housing market.

A lot has happened in the past few weeks, from a major hurricane, a local bankruptcy, still another hurricane
about to hit the US, and those higher gasoline prices.

Lets look at what happened in August, but the numbers to be reported for the rest of 2005 will be more
indicative of what is in store for 2006.

August was another good month, as single family closings were up 8.9% from the same year ago period, and
after lagged closings are reported, the increase should be in the double digits. Single family detached was up
7.6%, while condos and townhomes are back to double-digit increases with a 17.7% increase.

The average sale price for single family detached in August was $261,666 or an increase of 7.5% over
August 2004.

If housing price increases continue to be greater than inflation, our housing market could become overpriced
and demand will diminish. However, I also believe that our housing market has been undervalued for a very
long time and the market is not over priced. In 1995 the average price for detached single family housing
was $154,562, while the average so far in 2005 is $255,050. The general rule is that housing should double
every 10 years, which should put the Atlanta average at $309,000, which exceeds our current average price.
The average sale price for condos and townhomes was $184,216 or an increase of 2.0% from the same year
ago period. For the year, the average price for condos and townhomes is still 0.9% below 2004’s average.
August is traditionally the greatest month for withdrawing a listing, i.e. it is the end of summer, kids are back
to school, etc. August 2005 was no exception, as we set an all-time of 1,944 withdrawn listings for all single
family. However, the increase was more than normal.

Are consumers losing confidence in the economy and taking their homes off the market? Maybe, but there
are still as many pending sales at the end of August as there were at the end of July. Plus, there were 4,186
expired listings for all of single family in August. This was the 8th straight year-to-year decline and well
below 2004’s August number of 4,708. These positive results offset the negative result for withdrawn
listings.

I believe the effect of the hurricanes will be negative, but only for a short time. By short, I mean a year or
less, because there will always be the initial increase in jobless claims, but then we will need to rebuild,
which means more jobs, materials needed, and money spent. What needs to be watched more closely are
inflation and interest rates. Both of these need to remain down for housing to remain strong.

Thank you,
 

Steve Palm
Smart Numbers

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