Metro-Atlanta still faces challenges from all directions, especially when it comes to real estate holdings. That does not mean opportunities don’t exist, but it does mean you should have knowledge, a professional team, capital and patience.Where do our challenges begin? Roger C. Turrerow, PhD, Professor of Economics, pointed out consumer sentiment and per capital spending in Atlanta outpaced the nation for years. However, after 30 years (1975-2005) of relative easy growth Atlanta has become somewhat humble. Atlanta consumer sentiment and per capita spending has remained below the nation’s average since the recession began in 2008. If you have patience, better deals could present themselves over time as deflationary forces continue to act in your favor. If you own a retail outlet in the consumer discretionary realm you will want to be very aware of the spending environment and find solutions to your survival. Possible solutions could be to negotiate a rent reduction, find operational efficiencies to boost gross profit margins as a way to fight lower sales and manage inventory effectively.The next challenge is the Core Consumer Price Index (Core CPI). This statistic tracks the level of prices consumers pay for items besides more volatile items such as energy and food. Over the past 15 years Core CPI usually raised between 2-3% per year on average which allowed prices to remain stable. Rising prices (inflation) encourages consumers make purchases sooner than later since future prices will be higher. The beginning of the deleveraging of the financial system and failing home prices has led Core CPI to fall to around 1% (February 2010). The fall in prices (deflation) influences consumers to delay spending since future prices will be lower. In an environment of falling Core CPI you should have patience and conduct research when making purchases to ensure you get the best value and prices will not continue to decline after your purchase. You should be mindful of the pressure of the falling home prices in the Core CPI maybe masking actual upward pricing pressures outside of real estate.Anyone need a job? Unemployment continues to stay stubbornly high at 10% and underemployment still over 16% (May 2010). As the economy soared from 2002-2005 200,000 job per month were added. Since the recession began in 2008 the economy has shredded 8,400,000 jobs. Jobs have not stopped being lost outside of the government hiring worker for the Census. When will the private sector begin a much needed hiring binge? When it does start to hire again it would take 42 months (3 1/2 years) for the labor market to rebound. Roger Tutterow does not believe the labor market will rebound until 2013 or 2014. The opportunity for employers is to hire more qualified employees and to build a better, stronger team. The opportunity for the unemployed is to start a business or make a dream become a reality (I would hike the Appalachian Trail). A caution is to hire an employee by yourself as you might be buried by resumes. You may want to hire a Human Resource or staffing firm to assist you by screening applicants.A run from risk or a flight to safety? Same difference? The US Treasury and Federal Reserve stopped purchasing mortgage back securities in March 2010. This should have increase interest rates due to less market buyers, but instead rates fell. The primary driver of the falling rates is due to currency and economic problems in Europe. Foreign investors who abandoned the US dollar the past several years are returning. The result is lower interest rates on our mortgages, savings accounts, US Treasury Bonds. The opportunity is to lock in long-term debt at low prices. Be mindful not to lever up in a world which is de-leveraging. The low interest rates for the 10 year Treasury Bond (yielding 2.5-4.75% in the past year) could be a signal from the markets that the growth over the next decade could be anemic. Also, be mindful not to lock in assets at low interest rates unless your intent is to hold until they mature sense those asset values would decline in value as interest rates rise.Will I ever get another bank loan? Banks continue to tighten their lending standards. Even small businesses which remitted their loan payments timely are still having difficult renewing lines of credit or finding financing solutions. Some small business lending pressure is due to small businesses being financially vulnerable and the net worth of the small business owners rapidly declining. Other pressures on banks are from residential and commercial real estate prices declining and remaining under pressure. Additionally, new regulations and regulators are influencing bank activity. Higher capital ratio requirements are forcing banks to raise capital or reduce the number of loans in their portfolio. Raising capital has stiff costs (and is not popular at the moment) and dilutes the current ownership. It is easier for banks to shrink their loan portfolio than it is to raise capital according to Chistopher Marinac of FIG Partners, LLC. Mr. Marinac aslso notes 50% of all banks in the US having problem asset ratio of at least 5% and anticipated to get worse the bank tightening will continue for the next several years. The credit cycle could take 5 to 7 years to work through. The opportunity is to lock in long-term financing longer than 7 years at the current low rates. Again, we caution to be sensitive to leveraging up in an economy which is deleveraging.Will home prices or the number of home sales every go up? The number of home sales dropped 80% nationally and 94% in Atlanta from the peak in 2005. Additionally, Georgia had an 88% decline in single family homes starts. Even through home prices are still above historic levels compared to inflation the gap has been narrowing in recent months. The home buyer’s tax credit spurred interest in real estate (they are expired since April 2010), the price decline is beginning to tempt potential buyers and at the same time inventory has collapsed. John Hunt of SmartNumbers believes there is a chance of a housing shortage in 2012 in Atlanta when you combine these factors. A patient and knowledgeable buyer should have good buying opportunities for long-term property (i.e. a home to live in for 30 years or a long-term investment property purchased without financing). Prices continue to remain under pressure so don’t feel rushed or pressured into a deal. Be cautious of the “deals” you hear about from friend, enticers or whispers in the wind, John Hunt warns, as most of these deals require a lot of capital, capital improvements and sweat equity.What about the small guy? Lot prices in Atlanta launched like a rocket ship heading for the moon from 2004-2006. A building rule is the higher the lot price, the more expensive the house on the lot is. Therefore, higher lot prices lead to bigger, more expensive, more luxury homes. John Hunt of SmartNumbers draws the conclusion the first time home buyers were priced out of the market. The first time home buyers are traditionally the drivers of the housing market. As lot prices continue to fall smaller, more modest homes have been constructed which have helped attach first time home buyers back into the market. One warning, granite counters are no longer standard, they are an upgrade you will have to pay for. Welcome back vinyl!So what will Atlanta look like in 10 years? Over the past 10 years Atlanta exploded in area as the population spread out over the 13 Metro-Atlanta counties. The explosion led to urban sprawl and an infrastructure expansion. The infrastructure build-out included energy, water and roads. Tad Leithead, Chairman of the Atlanta Regional Commission, believes the next 10 years will see Atlanta implode to it city centers. The population will continue to grow and live closer to the main city centers (Downtown, Midtown, UptownAtlantic Station, Buckhead, Marietta and Perimeter). The pressure to move closer to a city center will continue as prices have declined and commuting costs increase. The opportunity is to remember the odd real estate saying that it’s about “location, location, location.” Can you find a good real estate investment near a main city center? The one area to avoid is raw land either commercial or residential, especially the further from a city center it is.Atlanta will survive, but challenges still exist. Patience should trump risk; knowledge should overcome greed or a rush to purchase; capital should replace debt in business models; and financial discipline needs to be a cornerstone of investment decisions.