A severe housing inventory shortage has the Atlanta real estate market in uncharted territory. Housing and economic strength are inherently welded together. They have a beneficial symbiotic relationship and in a sense they need each other. The lethargic economy continues to be a challenge and that is having a direct impact on housing. Not just on buyers but surprisingly on listing inventory. Homes for sale in the Atlanta area and nationwide are down significantly and while a number of reasons are offered, there are several reasons for the housing inventory shortage. Data from the last two years indicates the following key seller stats:
- 26% of owners have to sell at any given time for a variety of reasons: jobs, personal circumstances, etc.
- 76% of owners have options on when, or if, to sell.
- Median ownership time is 9 years. This decreases with younger growing families and increases with stability.
The highs and lows of the Atlanta real estate market are significant. It is an exceptionally fast moving, turbulent time. These 7 factors are the major reasons behind the housing inventory shortage:
Lack of Equity
Estimates are that 18.9% of owners have less than 20% equity in their home. This makes it difficult to absorb the costs of moving, the new loan, and the down payment. Most people currently in homes do not qualify for the various incentives minimizing upfront costs and the added costs of mortgage insurance become prohibitive. 10.7% of owners are considered still underwater which means they owe more than the home is worth.
Sellers Want a Profit
During the peak of the boom (2004-2006) roughly 16 million homes were purchased. Most buyers still own the homes that they bought at that time or near peak prices years ago. As of the third quarter of 2015, only 57 percent of the top 300 markets had reached or exceeded their peak prices. Owners want to make a suitable profit and this is of course, tied to the equity problem.
Where to Move?
Homeowners who want to sell are worried that they will not be able to find another property that’s affordable. Many potential sellers see homes that they consider overpriced, of marginal quality, or simply not present. Given the inability to feel confident about finding something that warrants a move, they sit and this exacerbates the problem.
The Feds have artificially held down rates for what seems like an eternity and millions have refinanced and locked in rates in the low 3% range while some even found high 2% loans. Those rates are largely gone and while rates are still good by historical standards, many in that 74% that have an option, are happy sitting still with rates that might not be seen again.
The Influence of Investors
Wall Street exploited the very crash they helped cause. Seed money into the hundreds of millions spawned hedge funds, REITS and other institutional investment organizations that literally gorged on distressed inventory. And the banks were eager to sells blocks of properties, hundreds at a time, to them. Estimates are that 5-6 million homes went from ownership to rentals between 2007 and 2012. Single family rentals increased from 9% in 2005 to 13% in 2015 which is a 44% increase. The investors remain active although not nearly at the same pace since the amount of inventory has decreased drastically.
The New Construction Conundrum
Builder swagger during the “my way or the highway” boom was snuffed by the crash and the number of home builders post-crash has been drastically reduced. Challenges face the industry and they include significant labor shortages, material costs and delays, access to credit, local fees and permit costs, and time and the cost of land acquisition and development. A common observation about new homes both here in the Atlanta area and nationally is that the quality and craftsmanship leaves much to be desired and the cost of new homes seems unjustified. The “my way or the highway” mentality seems to be creeping back into the process and that is likely a mistake.
Boomers not Selling
For all kinds of reasons, boomers are staying put. This alters the “traditional” cycles, particularly in the cities where gentrification is common as areas are rediscovered. Later retirement ages, longer careers, better health, loss of household wealth during the recession, and the decline in home equity are all factors. So, too, are kids that return or don’t leave the home. The lethargic economy has spawned an increase in multi-generational homes where grandparents and underemployed college grads co-exist. Insane health care costs also play a role as parents and grandparents are living out their days in the house in a attempt to lessen the financial burdens.
Nothing operates in a vacuum, especially now when the global economy impacts Main Street. There is a palpable apprehension with this economy and while the spin from Washington is all about the recovery, the data pushed simply does not agree with the prevailing attitude of the majority of people. There is no doubt that the real estate market has turned and continues to improve, but this market is not acting like any before it. The dynamics are different just as they are for the economy in general. To a large extent this is uncharted territory being mapped as we go. One basic tenant is obvious; any successful market requires sellers and buyers and therein lies the challenge.
If you’re ready to buy or sell your North Atlanta home, give us a call at 678-428-8276 and let us show you how we can help!