Even if mortgage rates fall, metro Atlanta’s housing shortage is acute

Not enough sellers and too little building mix with higher interest rates to keep homeownership out of reach for many
Construction was not finished yet, and the house was already sold. Part of a development at Tapp Farm by Traton Homes in Powder Springs. Miguel Martinez /miguel.martinezjimenez@ajc.com

Credit: Miguel Martinez

Credit: Miguel Martinez

Construction was not finished yet, and the house was already sold. Part of a development at Tapp Farm by Traton Homes in Powder Springs. Miguel Martinez /miguel.martinezjimenez@ajc.com

Mortgage rates will likely drop in coming months, as the Federal Reserve eyes interest rate cuts in 2024. But the shortage of affordable homes in metro Atlanta will continue to bedevil the market, keeping many younger, wannabe buyers from owning while pushing others ever-farther from the city, according to analysis this week by a regional housing expert.

Scarce inventory — that is, homes listed for sale — has been the result of a long-running shortfall in construction, zoning constraints by municipalities and counties that limit more modest options and a “lock-in” effect of would-be sellers not wanting to give up their low interest rates that keeps current owners from putting their homes on the market, said John Hunt, principal at MarketNsight, an Atlanta-based firm that tracks housing throughout the Southeast.

“Home values are up 60% over 2019, so you are sitting on a boatload of equity — sell those dang homes,” he said, speaking at the organization’s regular conference. “But wait, you’ve got to have a place to go.”

About two-thirds of outstanding mortgages are at rates below 4%, while 90% are lower than 6%, according to Realtor.com.

Few owners are anxious to sell their home, then have to take on a much more expensive mortgage.

The average rate for a 30-year fixed-rate mortgage peaked at 7.79% in late October. While not set by the Federal Reserve, mortgage rates are affected by the short-term borrowing rates that are Fed-determined.

The Fed has signaled an intent to cut those rates starting next year.

The average mortgage has already slipped this week to 6.95% , according to Freddie Mac, and is expected to dip more in the coming year. But it is still higher than it was between mid-2001 and this past summer.

Moreover, construction of new housing has not kept up with the region’s growing population.

That is a problem, not just for boomers who might be interested in downsizing, but also for millennials and older members of Gen-Z, who are hoping to buy their first home. Historically, Americans moved from apartment to small home to larger houses and built wealth along the way to retirement, but recent years have seen many of those potential buyers shut out.

A home for sale sign is displayed in the yard in Powder Springs, Tuesday, April 7, 2020. (ALYSSA POINTER / ALYSSA.POINTER@AJC.COM)

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“We have stopped the conveyor belt,” Hunt said. “It’s not just the lack of inventory. It’s inventory at prices that more people can afford. We are really suffering at the lower price points.”

At the current 6.95% average interest rate for a 30-year, fixed-rate mortgage, the buyers of a $400,000 house, who put 10% down, would pay $720 a month more than they would have paid before the pandemic in December 2019, when the rate was 3.73%. (That doesn’t include taxes and fees.)

After the painful collapse of the housing market set off the Great Recession, many builders left the business and the survivors were cautious for years about taking chances on new construction. And while the economy rebounded, job growth surged and Atlanta welcomed many thousands of new residents, homebuilding activity never approached the pre-recession levels.

“We are still 45,000 housing units short,” Hunt said.

And what has been built has been much more expensive than pre-recession. That’s partly because many local governments have prevented construction of smaller houses on smaller lots even as the price of land rose sharply — especially closer to Atlanta.

Home prices are generally at least four times the cost of the land, Hunt said. So, with a lot in Gwinnett selling for an average of $90,000, a builder will put up a house that will cost a buyer at least $400,000, and even outlying counties like Jackson and Paulding are only marginally cheaper.

In Fulton County, a house lot averages about $100,000. In Cobb, a lot averages about $131,000.

Just two years ago, most of the 15 top-selling neighborhoods in metro Atlanta had an average price below $350,000, Hunt said.

“Now it is zero,” he said.

Inventory has been at historically low levels for several years. In a balanced market, when buyers and sellers have generally equal negotiating power, the number of listings typically represents about six or seven months of sales, experts say.

Listings now are less than half that.

That makes for fewer sales, and it also gives sellers the upper hand — especially in desirable locations and at lower prices. So the rise of mortgage rates slowed the rise of prices, but hasn’t yet led to decreases.

In the 12-county area centered on the city of Atlanta, there were 12,486 homes listed for sale last month, down 3.2% from the same month a year earlier, according to John Ryan, chief marketing officer of the Georgia Multiple Listing Services.

The median price of a home sold in that area last month was $395,000, up 5.4% from a year earlier, according to the Georgia MLS. During the month, 3,837 homes were sold last month, 11.3% fewer than in November 2022.

High rates are a drag on potential buyers too, potentially adding hundreds of dollars per month to mortgages.

“From what I see, the Atlanta real estate market is dragging a bit this holiday season,” said Torrence Ford, broker and owner of Re/Max Premier in Atlanta. “However, there are normal markets in and around Atlanta in pockets that are still thriving. In areas with an excellent school rating, we are not seeing much change. Buyers will still pay to be in a desirable community.”

The prices and the rates: Housing gets more costly

Average rate, Dec. 2023: 6.95%

Average rate, Dec. 2019: 3.73%

Median Atlanta-area listing price, Dec. 2023: $419,995

Median Atlanta-area listing price, Dec. 2019: $318,138

Monthly payment*, $318,138 home, 3.73%: $1,323

Monthly payment*, $318,138 home, 6.95%: $1,895

Monthly payment*, $419,995 home, 3.73%: $1,746

Monthly payment*, $419,995 home, 6.95%: $2,502

*Monthly payments based on 30-year fixed-rate mortgages with a 10% down payment. Does not include taxes and insurance.

Sources: Freddie Mac, Realtor.com


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