What goes up must come down cries the old song, but when it comes to the hot real estate market in Atlanta, things still seem to be moving up, up, up. For at least the past year, experts and amateur market watchers alike have been proclaiming that the end to the strong housing market is just around the corner. They are shouting that soon the higher home valuations will begin to drop, and we will again have excess housing availability. Meanwhile other real estate experts are confident that we will continue to see a strong sellers market for many years to come.
There is a lot about the future housing market that we can’t be sure about. What we do know is that mortgage interest rates have been steadily increasing, and likely will continue to do so due to inflation. Housing inventory continues to be low, and supply chain issues have made many of the supplies needed to to build a house hard to come by. All of this is happening while the prices of both new and existing homes continue to climb higher and higher.
May Housing Reports
The number of pending sales reported in April was down slightly from 2021, causing some folks to predict that the crash could be right around the corner. However, the decrease for Atlanta was only 2% lower than the April before, and numbers bounced back for May impressively. For homes listed at over $300,000, pending sales were up 25% over the numbers from May 2021.
The average price of the homes sold in Atlanta also continued increasing in May. In April the average exceeded $400,000 for the first time in history, hitting $412,500. Not to be outdone, May came in even stronger, with the average home sale price in Atlanta rising even higher, to $430,000. This number represents a 19.4% gain from May 2021.
New House Inventory Still Low
Drive around the Atlanta suburbs and you will likely see numerous housing developments being built, in spite of the supply chain struggles and material shortages that we are hearing so much about. Even in times of difficulty, new houses continue to be built due to the high demand for them. But just because they are being built, this doesn’t mean there are enough of them to go around. A recent poll of area home builders found that 85% of them still feel they do not have enough inventory to sell to all of their interested buyers.
Affordable Homes in Short Supply
The largest hole in the housing market is for houses under $300,000. There are massive shortages of available houses at this price point, not only in the metro Atlanta area, but across the south. Significant shortages of affordable homes beneath $300,000 have been reported from Dallas, TX to Nashville, TN to Jacksonville, FL. This is hitting first time home buyers the hardest, with the “starter home” almost extinct in some areas.
In 2002, the average new home price in Atlanta was $167,750 while the average resale home price in our city was $155,200. Those numbers are $384,900 and $365,000 respectively today, illustrating just how much more difficult it has become for young adults to purchase their first home. Many local agents are reporting that for their youngest and more inexperienced buyers, it is taking more than a dozen offers before one “sticks,” due to the intense competition for the limited cheaper homes on the market.
Housing Increases in Other Georgia Markets
While its true that home builders are still hard at work, cranking out new builds as quickly as the clogged materials supply chain will allow, new housing permits are still down 14% from last year here in Atlanta. But this doesn’t mean that the houses are being built elsewhere. Secondary markets such as Augusta, Macon and Columbus have seen an increase in housing permit requests over last year’s numbers, and these areas tend to be more affordable than metro Atlanta. These areas are becoming more popular than ever for home buyers, due in large part to the increase in remote work brought about by the pandemic. Now that so many people are working from home exclusively, there is no need to live close enough to the city for an easy commute. This will allow housing markets in these smaller cities to continue to flourish.
Even in the metro area, people are venturing further and further into the suburbs to look for a new home. Just under a decade ago, 75% of all new home sales in Atlanta occurred in core counties of Fulton, Dekalb, Cobb, Gwinnett and Clayton. Today, only 50% of Atlanta’s new home sales happen in these counties as buyers and builders both continue to look farther out into the suburbs, due mainly to affordability.
The Effect of Higher Mortgage Rates
A basic prediction that many people may make is that as mortgage interest rates rise, fewer people will be able to purchase a home, which will cause a slow down in the market. Hopefully this will not be the case, as economists note that balancing the housing market by decreasing the number of consumers able to participate in it is actually bad for consumers and the economy in general. The best way for the market to balance naturally would be through an increase in supply, eventually to the extent that there are more available homes than needed for the number of buyers looking.
Increase in Investment Properties
The purchase of second homes and investment properties has been trending upward across the city, even with housing costs skyrocketing. The reason for this is that many wealthy Atlantans accumulated even more wealth during the pandemic. It was during this same time of volatility and travel restrictions, that real estate became a favorite outlet among many people for investment. Our city has one of the most robust investment markets in the nation, and as 2021 drew to a close, the investor share of Atlanta home sales increased to over 30%.
The demand for these investment properties is at an all time high. Renter-occupied households in Atlanta account for almost exactly half of the total occupied housing units. These numbers will continue due to the ongoing shortage of entry-level housing available for purchase. The result is that many of these potential first time home buyers are opting to continue renting instead. Even with Atlanta’s median rent prices increasing by 23% since last year, the rental market shows no signs of slowing down. Another factor contributing to the strong rental market is the personality of the city. Atlanta is quite the transient town, with large numbers of people continually moving in and out. Typically, those that don’t intend to stay very long do not care to put down such strong roots that they would consider buying a house.
What’s Coming for the Rest of 2022
The low inventory of available houses on the market will continue to be the detail that will keep the housing market from crashing. Even if home prices and mortgage rates continue their meteoric rise, having so few houses available will keep the market healthy as the fewer qualified buyers still have to battle it out over the housing that is available to them. Experts estimate that currently in Atlanta, we have an 89,000 home deficit of inventory.
Also worth noting, the majority of home buyers currently are millennials, and this is a huge demographic group, meaning the demand will continue to be high for years to come. Those who are unable to purchase a home in 2022 will keep looking and keep trying. During the pandemic, millennials moved back home in record numbers, which created for them vast opportunities for savings. Now they are able to use these accumulated savings for down payments on houses, making them able to afford higher housing costs than the first time home buyers of previous generations.
Meanwhile the majority of homeowners belong to another exorbitantly large generation – the baby boomers. And these older Americans are not downsizing and selling their homes at the rate that prior generations did. Instead they are hunkering down and holding on to what they have, unwilling to risk purchasing another, smaller home at a higher interest rate than they are used to, and uninterested in the bidding wars that go on for available houses. Since 90% of the houses in the area are existing homes, this further limits the resale market and available resale inventory.
Jobs will continue to bring people to the Atlanta area, meaning that even difficult to afford and hard to find housing will be in high demand in our city for years to come. Atlanta was recently recognized as a “magnet market,” which is defined as a “destination for both people and companies, and growing more quickly than the U.S. average in terms of both population and jobs.” It is predicted that 1.2 million new jobs will be added in the city between now and 2050, and many of those jobs will result in people moving into the area from out of state. This influx of new residents will likely mean more growth in the suburbs than in the city proper, so you will continue to see populations jumps in the outer portions of the metro area.