State of the Atlanta Real Estate Market 2022
A Forecast for the Atlanta Housing Market in 2022
The Atlanta housing market remains hot in early 2022. But how hot is too hot? Should you buy now or wait? What does hot even mean? Let’s take a minute to go over some fact-based answers to these questions.
“Nobody has a crystal ball, but…” is what you’ll commonly hear from any real estate agent when you ask about the direction of the housing market. This sentiment is wise, no one can time a market whether it is the stock market, foreign exchange markets, or the housing market. However, when I speak with my clients, I like to remind them that we do not need to see the future when we evaluate the Atlanta housing market, we can make informed decisions with real facts that we know right now. So, what are these facts?
Atlanta Housing Market Inventory: It is a fact that market inventory remains low. As of December 2021, on-market inventory was a paltry 1.1 months. This means that if no new homes listed starting today, then it would take 1.1 months for the currently listed homes to completely sell out. For reference, the traditional definition of a “balanced market”, or one where sellers and buyers have equal leverage, is 6 months of inventory. To be clear, I believe the 6 months of inventory benchmark of a balanced market is antiquated. 2012 was one of the best buyers markets in recent history, and even during that year inventory sat at approximately 6 months. The mid 2010s featured inventory levels in the 4 month range, which I posit is the “new balanced market” level. However, even by that lower standard the Atlanta housing market would need to quadruple to restore balance. This is our supply.
Metro Atlanta housing market months of inventory over the past 10 years
Interest Rates: What goes down, must come up. As of January 2021 the average 30-year fixed rate mortgage was near historic lows at approximately 2.6%. 2021 saw a steady increase in average rates triggered by front-running mortgage lenders sensing that federal benchmark rates would soon rise. January 2022 has signaled the beginning of a sharp rise in mortgage interest rates, and the average 30-year fixed rate now sits at just over 3.5%. What does this really mean for home buyers? For a typical $350,000 Atlanta area home this 0.9-1.0% increase represents an additional $50-60,000 of total payments over the life of a 30 year loan, or approximately $170 a month! I know I sure could use an extra $170 a month, and so could most home buyers. Although no one can accurately project where mortgage rates will be in the coming months and years many buyers sense that what goes down, must come up and know that 3.5% is still relatively historically low, so they are motivated to find homes and lock in mortgage rates in 2022 because they believe that rates will continue to rise. This is our demand.
So, now we’ve established our supply and our demand, these are our facts. Cheap money borrowing (demand) and low market inventory (supply) combine to point to another competitive home buying market, and as we all learned in Econ 101, markets with high demand and low supply will typically drive prices up. The final piece of our 2022 Atlanta Housing market forecast is precedent to help us predict how much prices may rise.
2021 Market Increases: Our last piece of data is how markets performed last year. Why? Because we entered 2021 with 1.2 months of inventory and low mortgage rates. Does that sound familiar? Although not identical, the market conditions entering 2021 vs. 2022 are very similar. A good advisor will always caution that past performance does not predict future performance, however sometimes past performance does wink suggestively at future performance. In this case the January-April market performance in Atlanta saw 16.9-21.0% year-to-year increases over 2020 prices. This is our precedent.
At last we have all the pieces of our fact-based housing forecast. Huzzah! Our current market facts, interest rates and months of supply establish the landscape of our market, and the 2021 precedent gives us context of the results that similar facts have correlated to in the past.
My (totally speculative) 2022 Atlanta Housing Market Forecast: At last! Now that we’ve established why I’m going to say this, I’ll just go ahead and spit it out: I believe that the 2022 housing market will continue to be driven by high, interest rate-motivated demand, and subject to low supply. Looking at the 2021 precedent, I believe we will see similar results, e.g. double-digit increases in median price points, however I do not think that median price increases will be as steep as 2021 because the increase in mortgage interest rates lowers consumers’ buying power by about 10% currently. If the average monthly year-over-year price increase in 2021 was approximately 19%, I would expect 2022 average monthly year-over-year price increases to be moderated down to 14-15%. Finally, looking at the later half of 2022, my supposition is that we will see continued slowing in demand as a result of rising interest rates and slower, but still robust price growth. Finally, a caveat: do not take this is gospel, as mentioned at the top, no one has a crystal ball, and none of us can time a market. This is simply my conjecture as a guy who enjoys statistics.
Final Thoughts:
So, what does this all mean for you? Well you need housing, that is a certainty. If your life situation is right for home buying or selling currently, do not be afraid to do so. Folks in 2019 thought the market was “too hot” and we see how that turned out. Folks who bought “at the top” in 2007 have discovered that the new top has helped them recoup their losses from 2008-2012 and then some!
Who should definitely not buy right now? Those who are highly averse to competition (the market will be competitive this spring) or those who barely have the necessary liquid cash to cover closing costs and down payment on a home (keeping your savings safety net takes priority over locking in a good mortgage rate).
If you are not in either of the above groups and you need help deciding if now is the right time to buy or sell, please do not hesitate to reach out to me. I am always happy to help you asses your individual needs and decide if 2022 is the year for you or not. Cheers!