Nearly a third of all houses sold in metro Atlanta last month were new construction, according to MarketNsight, triple the rate of a year ago, as higher interest rates lock would-be sellers of older houses in place.
The rise in the proportion of new homes sold compared to total home sales isn’t because of a boom in new development — on the contrary, the region still isn’t building enough houses to satisfy demand — but is instead the result of a slowdown in sales for a housing market that’s yet to find a post-pandemic equilibrium.
Not since the days of the housing boom in the early 2000s has new construction been such a large factor, but this time the reason isn’t frenetic development, it’s the way rising mortgage rates have dissuaded many potential sellers from unloading their current houses for new digs, experts say.
Credit: Miguel Martinez
Credit: Miguel Martinez
Because owners fear their next home will come with much higher rates, many hesitate to sell their current house, depressing inventory — the number of homes listed for sale. And that in turn has continued a prolonged imbalance — too many buyers, not enough sellers.
New homes are partially making up for that sell-side scarcity, said John Hunt, principal in MarketNsight, which tracks Southeast housing markets.
Fresh construction now accounts for about 20% of metro Atlanta’s pending sales — that is, homes on which there’s a deal but not a final transaction, said Hunt. “New homes are also a higher percentage of inventory.”
But new home construction tends to be farther from Atlanta’s core and at higher prices than existing homes for sale.
Mortgage rates have dipped from the highs of November, averaging 6.39% in the most recent report from the Federal Home Loan Mortgage Corp., the mortgage-buyer known as Freddie Mac. That is still far higher than the levels at which many current owners bought or refinanced their homes.
In a balanced market — in which sellers and buyers have roughly equal negotiating power — listings of homes usually equal at least six months of sales. But inventories now account for less than two months of sales, according to the Georgia Multiple Listing Service.
Builders alone cannot fill the gap, Hunt said.
“To be at six months of supply,” he said, “we’d need 62,000 more homes.”
This year, there will be about 21,500 permits issued, he said.
At the peak of the housing bubble, builders received permits for 61,000 single-family homes, including condos and townhomes. But after the bubble burst, the region suffered a deep recession, going years with little construction.
Atlanta home prices have long been a key attraction to transplants from more costly areas. And Atlanta prices still compare favorably to the Northeast and Pacific Coast, but offerings are scarce at the low end.
Close to the city, the price of land has long compelled builders to produce higher-priced homes, typically north of $500,000. So construction has been moving farther away from Atlanta and — while more affordable — the prices are still a challenge to some first-time buyers.
Two years ago, the top area for construction was West Forsyth, about 40 miles from downtown Atlanta. Now, it’s Jackson County, about 60 miles away.
Two years ago, 10 of the top 15 areas for new construction had an average new home listing for less than $350,000. Now, among the top 15, only one has an average price that’s less than $350,000, Hunt said.
Credit: Miguel Martinez
Credit: Miguel Martinez
More than 60% of new construction is still being purchased by first-time buyers, said Brett DePriest, executive vice president of Acopia Home Loans, a mortgage lender.
While higher rates discourage some buyers, many young professionals have done well the past several years, well enough to shrug off rates, he said.
“Demand is there and really, affordability is there,” DePriest said.
Moreover, mortgage rates are not that high historically. So long as jobs and wages are growing, people will adapt, he said.
A recent National Association of Homebuilders survey found 18% of adults said they plan to buy a home within the next year.
But with supply still limited, even rapid construction will not rebalance the market quickly, said David Camp, chief executive of Atlanta-based HomeScout, which provides software connections between lenders and buyers meant to make the purchase process easier.
“You’ve got a 10- to 15-year inventory problem,” he said.
When sellers are few and buyers plentiful, homes are quickly snapped up, so a good way to see how uneven those forces are is by looking at how long homes are listed for sale before a deal is made, Camp said. “The number one indicator I look at is days on market.”
By that measure, the balance has begun to tilt back toward sellers, according to national brokerage Redfin.
Credit: Natrice Miller / Natrice.Miller@
Credit: Natrice Miller / Natrice.Miller@
A year ago, the median time on market in Atlanta was 20 days. Lat month, it was up to 35 days, according to Redfin.
Nationally, construction of new homes last month jumped 9.6% from February to an annual pace of 683,000, according to Nicole Bachaud, senior economist at Zillow, which lists and tracks housing.
“This bump in new inventory is important for keeping the market on a healthy and sustainable trajectory,” she said. “Upticks in single-family home construction could indicate that we will continue to see this flow of new construction homes making its way to the market when it’s needed the most.
However, one danger to a continued rebalancing is the recent turmoil in banking, said Mark Palim, deputy chief economist at the Federal National Mortgage Association, also known as Fannie Mae, which buys packages of mortgages.
Tighter loan policies would mean fewer loans to builders, he said. “That could weigh on future new home construction.”
Permits for new single-family homes, metro Atlanta
Peak: 61,000 (2005)
Bottom: 5,000 (2009)
Recent high: 32,000 (2021)
Last year: 27,000
Forecast, 2023: 21,500
Average mortgage rate
Record high: 18.63% (Oct. 9, 1981)
20-year high: 7.08% (Nov. 10, 2022)
Last year low: 4.99% (Aug. 4)
Last year high: 7.08% (Nov. 10)
Recent: 6.39% (April 20)
Sources: MarketNsight, Federal Home Loan Mortgage Corp., Federal Reserve Bank of St. Louis, Redfin
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