Demographics and economics are driving the housing market in metro Atlanta toward a surplus of high-priced homes and a vast pool of young renters, according to a high-profile expert.
Since the recession, dramatic changes have puzzled many observers, but the forces driving the market are too powerful to fade quickly, said John Hunt, principal in Atlanta-based MarketNsight during a Thursday conference at SunTrust Park.
“This is a reset,” Hunt said. “This is a demographic and psychographic reset.”
Home prices have been solidly rising while the number of sales in many areas is weak. It is not a lack of demand, but there is a mismatch of demand and supply. There are potential buyers, but not enough inventory – homes that are listed for sale.
But it’s not across the board, Hunt said. “There’s a shortage of homes for sale, but the shortage is at certain price points.”
New construction used to churn out many “starter” homes. Now, new construction is disproportionately higher-priced.
That is because the starting point for home prices are the costs of land and development – the higher those rise, the more a builder is driven to charge for his product.
That is because once builders have spent upwards of $100,000 on the purchase and preparation of land, then more on labor and materials, they are simply not going to build an entry-level home, Hunt said.
“We are running out of cheap lots,” he said. “We [builders] are all being funneled into the market for buyers who are capable of paying more than $500,000 and we are not all going to fit.”
The number of homes sold is falling in some areas because the available homes are out of reach of most potential buyers, he said. And the price inflation is going to worsen, Hunt said: the land being readied for homes is much more expensive than the land used for homes that are currently for sale.
The biggest impact comes from the two biggest population segments, he said: baby boomers and the older millennials who have embarked on careers and settled into couples.
“These people have a lot in common – dual income, no kids. And they like to party.”
For the older boomers, that can mean purchase of a high-end townhome, but many boomers hesitate to sell their own homes since there are so many higher-priced houses on the market, so they “age in place.”
In many of the suburbs, sales are strong – and many of the buyers are young. But they are people who have started families, Hunt said.
Some millennials are still struggling financially. But many others — especially those without children — are choosing to rent in much greater numbers than their predecessors. And they live in apartments even though the rents they pay often equal to what would be a mortgage payment for a new house. But they simply do not want to live where those homes are being built, Hunt said.
Also speaking at the SunTrust conference, Rajeev Dhawan, director of the Economic Forecasting Center, said millennials who think about buying often don’t feel any urgency.
“The current crop of first-time homebuyers are conditioned to expect interest rates to rise, but then drop again.”