HOUSING AFFORDABILITY

As Home prices have consistently increased in Atlanta and surrounds in recent years, housing affordability has been a regular topic of discussion. In 2022 increasing homes prices compounded with high mortgage rates impacted affordability at a national level. At the end of 2019, the national average cost of home ownership represented 29.9% of income, by the end of 2022, this had increased to 44%, an increase of 14.1 percentage points in 3 years. Over the same period, the share of income required to own a home in Atlanta increased from 23.6% to 41.8%, a 18.2 percentage point increase.

In recent years Atlanta has experienced rapid growth, attracting a large contingent of people relocating from other major cities. With a home ownership cost, at 41.8% of income, Atlanta remains affordable relative to many cities and offers more value for money. In New York it will cost you 66.1% of average income, San Francisco 88.8%, Los Angeles 91.4%, Austin TX 53.1%, and Denver 53.6%.

WHO IS BUYING WHAT, AND WHY?

The largest contingent of active participants in the housing market continues to be Millennials. Older Millennials with a median age of 36, and Gen Xers with a median age of 49, combined make up 47% of buyers. Younger Millennials are most likely to be first-time home buyers. Older Millennials and Gen Xers have the highest household incomes of home buyers and purchased the most expensive homes.

The most common type of home purchased is the detached single-family home. While younger generations may rent in apartment buildings, when it comes to purchase, preference remains strongly in favor of detached single-family homes. The quality of the neighborhood is the top reason for choice of location, but the younger the buyer, the more influenced they are by the convenience of the home to their job.

The main reasons that buyers are making a purchase is the desire to own, the need for a larger home or a change in life situation: marriage, birth, divorce, change in job. Even in times of heightened mortgage rates, these needs exist and people will make the decision to buy and sell homes.

The Luxury Market

The higher-end market has a larger share of cash buyers that are less impacted by movements in mortgage rates. This resulted in the Atlanta Luxury Housing market remaining remarkedly consistent in 2022 compared to 2021. The number of homes sold over $1million increased 6% on 2021, while the median sales price increased 1% to $1.334M.

More luxury homes entered the market in 2022, with new listings over $1M increasing by 20% compared to 2021. This can be attributed to both more sellers entering the market, as well as a reflection of price appreciation of recent years moving more homes into the higher price bracket.

Similar to the broader market, mid-year was a peak in both sales numbers and price. At this point prices were 4% higher than one year prior. The second half of the year saw less sales and inventory levels gradually increased each month reaching 7 months’ supply in December 2022, up from only 3 months in December 2021.

While not experiencing the fluctuations of the broader market, the luxury market is demonstrating sustainable strength. Compared to pre-pandemic 2019, the number of homes sold in 2021 was more than double, while price has appreciated 3%.

In 2023 a number of factors are expected to prevent the housing market from making a rapid return to the level of the previous two years. With interest rates remaining high and inflation putting upward pressure on the cost of living for an extended period, more people will feel financially squeezed. As consumer spending reflects this, companies will continue to adjust staffing levels and this broader economic uncertainty is likely to create hesitancy in the housing market.

The Atlanta housing market is anticipated to be relatively flat for the large part of 2023. Inventory levels will increase, but are expected to remain tight, which will impact the overall number of sales. This limited supply is expected to fall short of demand, the result of which will be a maintenance in price levels, which while not expected to grow at the same levels as last year, will hold or show moderate growth up to about 5%.

The level of market change will vary across different submarkets, however, Atlanta, and the greater Georgia, are placed much better than other housing markets across the nation. It continues to have robust economic activity and a job market that continues to grow as many major companies relocate here from the more expensive West Coast markets.

The NAR (National Association of REALTORS®) identifies 10 key indicators influential to how a housing market will fair:

1. Better Housing Affordability than the national level

2. More renters who can afford to buy the median priced home than the national level

3. Stronger job growth than the national level

4. Faster growth of information industry jobs than the national level.

5. Higher share of the information industry in the local GDP

6. Migration gains

7. Share of workers teleworking

8. Faster growing population than the national average

9. Faster growth of active inventory than the national level

10. Smaller housing shortage than the national level

Atlanta is the only metro market in the U.S. to meet all the 10 indicators. This places Atlanta at the top of the list as the housing market with most potential for growth in 2023. “The demand for housing continues to outpace supply. The economic conditions in place in the top 10 U.S. markets, all of which are located in the South, provide the support for home prices to climb.” Lawrence Yun, NAR chief economist.