Fueling the home prices is a big market mismatch: a glut of buyers, a dearth of sellers.
When a flood of buyers finds themselves bidding against each other for an ever-smaller set of homes for sale, prices surge.
The imbalance didn’t start with the pandemic. But the pandemic has taken it to a whole new level.
For the past several years, inventories — that is, the number of homes listed for sale — have been shrinking.
That lack of supply started with the collapse of the housing bubble a decade ago when builders stopped building. Even as the market slowly recovered, construction never kept up with the growth in demand.
Then, last spring, sellers retreated.
The number of homes listed for sale in metro Atlanta dropped 34.9% from January to November, according to data provided to The Atlanta Journal-Constitution by Re/Max.
In a balanced market, in which buyers and sellers have roughly equal power, the number of homes listed equals about six months of sales. By late fall, inventory was less than two months.
Some owners were afraid they would sell before they could find a new home of their own. Others were simply hesitant to have strangers traipse through their homes in the midst of a deadly pandemic.
In contrast, buyers were suddenly out in force.
As many professionals found themselves working at home, they became more concerned with how much space they had. They wanted upgrades and more room to keep spouses out of each other’s hair. Children also moved from the classroom to the dining room or kitchen during school hours.
Meanwhile, super-low interest rates beckoned.
The Federal Reserve, in an effort to keep the economy afloat as the pandemic choked many businesses, lowered its benchmark lending rate to nearly zero, which in turn pushed mortgage rates to record lows. That meant smaller monthly payments on homes even though their sales prices were rising.
“This has facilitated moves that people were already trying to make,” said Treh Manhertz, economist at online real estate company Zillow.
Homes put on the market in February took an average of 57 days to sell in metro Atlanta, according to Re/Max. By November, that had plunged to 36 days.
The median price of a home sold in November of 2019 was $251,500 in the region’s 28 counties. In November of 2020, the median price was $287,500.
Most of the action is at the lower end of the market — the “starter” homes that draw attention from both first-time buyers and investors, said Jay Cherry, general manager of Opendoor, which makes “as-is” cash offers for homes, then relists them for sale.
Homes priced below $200,000 are selling “six or seven times faster” than homes above $350,000, he added.
Many of the recent new buyers were millennials — a cohort that has been reaching or passing the age that historically lines up with homebuying. Their entry into the market has been delayed by student debt burdens and the recession a decade ago.
Many now have solid, white-collar jobs that were not lost in the pandemic, unlike many low-wage, hourly workers in restaurants, stores and health care who lost their jobs and are more likely to rent.
For those with jobs and savings — especially if they are starting a family — a purchase looks enticing, said Cherry. “We saw a significant uptick in the number of millennials purchasing homes. Plus a lot of people want more space.”
The pandemic also spurred talk of homeowners fleeing cities afraid of infection or in search of more space. Many of the most-searched properties were in the suburbs.
But experts say the financial incentives are as important a factor as fear. Moreover, many buyers are still targeting the city, where prices are still rising.
Intown Atlanta home prices are up an average of 7% in the past 12 months and are selling 11% faster than they were selling a year ago, said Bill Adams, president of Adams Realtors.
The average sales price for the city is more than $500,000, he said. “Housing affordability continues to be a big issue in the intown market.”
So people with modest budgets often look to the suburbs.
To be affordable, a home should cost less than $250,000, said Adams. “Only six of our 39 (intown) markets meet this definition — and some just barely do.”
Modestly priced housing has been a key metro Atlanta attraction for many years, drawing people with talent and money from many higher-priced cities. Losing that lure would dampen the region’s economic potential, experts say.
The longer the market takes to provide listings of lower-priced homes, the higher the prices will rise and the further out of reach ownership will be for many people, said Atticus LeBlanc, chief executive of PadSplit, which rents out housing.
Reining in runaway prices depends on the supply side of the equation — either a spurt of new construction or an increased willingness of current owners to put their homes on the market.
The demand-supply balance is not likely to change soon, experts said.
On the supply side, owners’ reluctance to sell will disappear slowly, said Opendoor’s Cherry. Still, “as the pandemic winds down, we could see more sellers feeling comfortable about putting homes on the market.”
Meanwhile, construction can’t rapidly compensate for the lack of supply, said MarketNsight’s Hunt.
It takes time for builders to buy lots, get permits to build and fulfill various regulations, he said. But interest rates are expected to stay low, so buyers are likely to outnumber sellers by far for a while.
“The Atlanta home market is capped by its ability to supply, not by demand,” Hunt said.
Zip codes with the most in-home visits
30349 (College Park)
Metro Atlanta, November snapshot
Homes sold: 7,922
Homes listed for sale: 14,035
Median sales price: $287,500
Average number of days on market: 36
Metro Atlanta housing market
compared to a year ago
Number of sales: up 11.1%
Number of homes listed for sale: down 45.1%
Median price sold: up 15%
Number of days a home is on the market: down 25.0%