Homes below $300,000 are almost nonexistent
“The housing shortage will get worse over the next year,” MarketNsight Chief Analyst John Hunt said at MarketWatch Atlanta. To get back to normal, Atlanta needs 66,000 additional homes on the market over the next 12 months. “We simply don’t have enough supply,” Hunt said.
Before the Great Recession, housing starts and population growth tracked together, but during the Great Recession, they began to diverge, and the deficit hasn’t recovered at all.
“We may only put 13,000 lots on the ground in Atlanta,” Hunt said. “New construction will not satisfy this deficit. Resale won’t fix it, either. People won’t give up their 3% mortgage to move to a 7% mortgage.”
This trend isn’t unique to Atlanta. The entire Southeast has a housing shortage of available inventory. For example, Augusta, Georgia, needs 7,300 units; Birmingham, Alabama, has a 16,000-unit deficit; Columbia, South Carolina, is short 12,000 homes; and Savannah, Georgia, needs 9,000 housing units over the next 12 months.
Housing shortage due to lack of inventory below $300,000
Exacerbating the problem is the lack of inventory below $300,000. “It just doesn’t exist anymore,” Hunt said. “This is true in all of these markets. If it can be built at this price, it gets burned off so fast; it doesn’t make a dent. If we had inventory at $350,000 across the country, we’d be up, not down.”
“An all-out war is being waged on housing affordability in our country,” Hunt said. “We have rising materials costs, rising interest rates, inflation and increased labor costs. And on top of that is restrictive and exclusionary zoning that is driving prices up always.”
Townhomes are a solution
Townhomes were helping to solve the housing shortage, but not anymore in many markets. Builders and developers are getting pushback from municipalities on anything with higher density. Townhomes are trending down in many markets.
“This is the wrong direction to mitigate price; you must build a denser product,” Hunt said. “The boomers and millennials don’t need a 3,500 square foot home on a big lot in a single-family subdivision. We aren’t building what they want.”
Is there a housing bubble?
Are homes overpriced or overvalued? MarketNsight says no, we are right where we should be. Using 2002 as the last normal year for housing, and running those numbers out at 4.5% annualized appreciation year over year, shows the story:
- The median new home price in 2002 ($167,750) at a 4.5% annual appreciation should result in a median new home price of $404,565 today, but MarketNsight shows that today’s actual new median price is $387,488.
- The median resale home price in 2002 ($155,200) at a 4.5% annual appreciation should result in a median resale home price of $374,298 today, but today’s actual resale median price is $380,000.
“There is only a 2% spread between resale and new homes. We should be selling tons of new homes,” comments Hunt.
He also pointed out that policymakers are relying on outdated and lagging data to push interest rates higher to curb inflation in housing. Hunt said, “The Fed needs to stop. They have accomplished what they set out to do.”
How are active adult homes affected?
Active adult closings are outperforming non-active adult closings. Lots of active adults are cash buyers, so they don’t care as much about rising interest rates.
Where will the new homes be?
Tracking lot sales shows where new homes will be built in the coming months and years. Even with 27 counties in the Atlanta Metro, a surprising number of areas with the most affordable lots are outside of metro Atlanta. “Goodbye Covid boomtowns, hello midsized markets,” says Hunt.
Look for mid $200,000 homes in the Warner Robbins/Macon area and more homes in Savannah. Other midsized markets, like Augusta, Georgia, Columbia, South Carolina, and Chattanooga, Tennessee, will also grow and benefit because people can work from anywhere.
“Anything below $350,000 is selling well,” says Hunt. “In 2016, 70% of home sales were below $350,000. Today, it is less than 40%.”
Once rates went above the 5.25% interest rate sensitivity threshold, demand slowed. The weekly 30-year Fixed rate in the second week of November revisited the year-to-date high of 7.08%.
“Now, it isn’t just about the rate; it is about the unrelenting news about a possible recession. Home buyers are holding off to see what happens,” says Hunt.
For the year to date, pending sales are down 12% from 2021 and down 2% against MarketNsight’s benchmark year of 2019.
Hunt’s forecast for the rest of 2022 and into 2023
The game changer is the lack of inventory (ie a housing shortage). According to MarketNsight, permits will be down 14% in 2022 and possibly down 15% in 2023.
Atlanta is not alone. Permits in all major cities are down 10 to 20%.
In summary, artificially restricting supply through exclusionary zoning is driving prices beyond people’s budgets – for rent or for sale. This is greatly impacting our nation’s ability to build affordable workforce housing.
MarketNsight is focused on helping its customers make smart decisions regarding purchasing land and pricing product. Its groundbreaking Feasibility Matrix provides a one-stop shop for gauging new home community feasibility by providing ranking reports, lot and raw land sales data, regression analysis and mortgage data.
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