There are obviously lots of potential answers for the question in my title.
But since posting earlier today about the extreme declines for Atlanta home prices in September and October according to the S&P/Case-Shiller Indices, I’ve been looking at a bit more data.
Consider the following:
Case-Shiller’s 20-City Composite more than doubled in 6.5 years, peaking at 206.52 in July 2006. Atlanta metro area home prices increased much more slowly over that time span, but they continued to increase for a full year after the 20-City Composite.
Atlanta topped out at 136.47 in July 2007.
Check out this graph (fully interactive on the site) from Latest U.S. Home Sales Price Reading a ‘Distinct Downer’ from Paul Solman with the PBS Newshour. The Composite-20 is in green; Atlanta in blue:
I was writing columns in that crucial year from fall 2006 when July data would have shown falling national prices to fall 2007 when the index would have clearly shown Atlanta metro area prices falling — but I wasn’t as tuned into home prices as I should have been. Few journalists were. But by mid 2007 — and even well into 2008 — I was seeing some amazingly bad investments, apparently being made under the theory that Savannah was “immune” from the national housing bust and the perils of overbuilding. From everything I know about the “wild west lending” in Atlanta, overconfidence was even more prevalent there than in Savannah.
I wonder what would have happened if state and local leaders, mortgage lenders, economists, journalists, and real estate professionals had started warning of the dangers beginning in late 2006. How many speculative real estate deals would not have been made? How many risky loans would have been turned down? How many unneeded units would not have been built?
How much did that extra year of overconfidence that metro Atlanta would be immune contribute to the sharp declines we’ve seen this fall?