New home owners Atandra and Melissa Burman, with their newborn daughter Ariyana, at the family home in Decatur. The couple are recent arrivals in town, recent homebuyers in Druid Hills and new parents. Curtis Compton /
Photo: Curtis Compton
Photo: Curtis Compton

Odd housing market confounds buyers, agents

Melissa Burman and her husband started looking for a new home last winter, checking out 20 or so houses in Atlanta and the Decatur area.

They found one they liked, offered more than the asking price — and still got outbid.

They kept trying, finally bidding $355,000 for a two-bedroom Druid Hills house, again higher than the asking price. This time they got it.

As they learned, metro Atlanta housing is an odd market these days: sort of hot, sort of not. There aren’t enough homes for sale, and in some areas price increases are shutting out buyers. Yet overall the area is affordable compared to other cities.

“We were very lucky,” Burman said quietly, careful not to wake her 10-day-old daughter. “And we added another bedroom to the garage, so now technically, it’s a three-bedroom house.”

The Bermans moved from San Francisco, the poster child for real estate insanity.

“We are paying less here than what we paid for a studio apartment in San Francisco,” Burman said. “It was a nice apartment, but still…”

The median value of a home in the San Francisco metro is $812,300, according to Zillow. The median in metro Atlanta is $166,700. Bay area sale prices have risen at an annual pace of 8.5 percent, while Atlanta’s have been up 7.5 percent, according to Zillow.

At whatever price point, such increases make affordability an issue “because wages are not growing,” said Nela Richardson, chief economist at Redfin, a Seattle-based residential real estate company. “There are some people – and I am surely not one of those – who think that we are in an affordable time for housing because the interest rates are so low. But it doesn’t matter how low the interest rates are, if you cannot get a mortgage.”

The inclination or need to rent – or maybe live with your parents – has chipped at the U.S. home ownership rate, which has fallen to its lowest level since 1965. Richardson said it would be even lower but for baby boomers who are holding on to homes.

Supply-demand mismatch

Atlanta’s rising prices fueled by a shortage of homes for sale.

In a balanced market, experts say, sales would work off all the for-sale inventory in about six or seven months. Atlanta’s inventory has been barely half that for several years. Last month, inventory was down to 3.2 months, according to a report from Re/Max of Georgia.

“The question is where is the affordable housing going to come from?” Richardson said.

More worrisome is that inventories are dropping, and most of the problem is at the low end of the market.

That hurts affordability for the potential homebuyers who are most likely to be stretching to make the purchase and struggling to keep up monthly payments. It is one reason some people continue to rent rather than buy.

Inventory of higher-priced homes is down 2.5 percent in the past year, said Svenja Gudell, chief economist at Zillow, but for entry-level homes it’s down 12 percent.

“It is not merely that people cannot afford to buy homes, but they can’t find homes to buy.”

Why are there so few homes for sale?

Experts suggest a number of reasons but all are evidence that nine years after the housing market started collapsing in Atlanta, the crash continues to resound:

— Some owners cannot sell because they are still “underwater,” their homes worth less than they owe on their mortgage.

— Much new construction is at the upper end of the market.

— Builders are simply not building at their previous pace, Gudell said. “Nationally, it is about 600,000 a year and we should be closer to 2 million new homes because we were under- construction built for so long.”

— Many homes are still owned by institutional investors that swooped in after the crash to buy homes on the cheap. They were looking for cash flow by renting them out and they are mostly still renting them.

“Institutional investors are not unloading their properties,” Gudell said. “They are getting a good return. So a larger share of single family homes are rented out today than historically.”

Rental rate rises

A decade ago, 11.1 percent of the single family homes in metro Atlanta were being rented. By 2014 – the most recent year available – that had soared to 19.3 percent, Gudell said.

The slowness in first-time homebuying makes it harder for people who already own homes to sell and move up to something better, she said.

“It’s the musical chairs problem. It is a fantastic sellers’ market, but it is a pretty bad buyers’ market.”

The imbalances are reflected in sales numbers.

In the 11 area counties covered by the First Multiple Listing Service, there were 5,392 sales in June – down 6.1 percent from the same month a year earlier.

“We have had tons of closings, but also an increase in the number of contracts that fall through,” said Adrian Smith, a senior agent for Redfin in Atlanta.

Ironically, she said, some of that is because buyers compete with each other for desired properties and bid more than the appraised value of the home. Then, some lenders won’t give the buyer the mortgage they need.

Banks since the housing crash became more careful about who they loaned money to – and they are not making the kinds of high-risk loans they made in the run-up to the crash, said Mark Swancy, vice president in Fifth Third Bank’s mortgage group for the Southeast.

But the problem is in the market itself, not in the ability to get credit, he said, adding that “The fundamentals of the mortgage business are better.”

First-time buyers now tend to be older and on more solid financial footing, Swancy said.

“If there is a worry, it is that lack of inventory. That is something that we have to watch a little bit. It may be giving us some price points that could be a problem.”

Support real journalism. Support local journalism. Subscribe to The Atlanta Journal-Constitution today. See offers.

Your subscription to the Atlanta Journal-Constitution funds in-depth reporting and investigations that keep you informed. Thank you for supporting real journalism.