Another year has passed and we still do not have enough houses for everyone that wants them. In fact, 91 percent of the market right now is under-supplied.
Data just released from Smart Real Estate Data, a leading tracker of data for the Metro Atlanta residential industry, shows that inventory of houses on the market in relation to those that need them is still in an unhealthy place. Housing inventory is measured in the months it is estimated it would take for buyers to buy all of the houses currently listed on the market. It’s called months of supply, and real estate experts say that six months of supply is deemed healthy for the economy. If there are more than six months of supply, then it’s a buyer’s market and housing prices will drop. If there are less than six months of supply, then it’s a seller’s market and housing prices will rise. According to Smart’s data, 91 percent of the homes in the metro area are under the six-month mark.
This low inventory has been exacerbating problems for those looking for lower-priced houses as land, building regulations and materials have made homebuilding too expensive for builders to be able to build anything and sell it for under $300,000 in the metro area. So, with builders not building inventory and demand growing as more people move to Atlanta, prices have risen more in this price-range than most others. Inventory for anything under $300,000 is dangerously low, currently sitting at just over two months.
According to Smart’s data, months of supply goes up for more expensive houses. And up until last June, the equilibrium point (the point at which you get that healthy six months of supply) was right at $600,000. Right now, Smart’s numbers show that the price point has moved up to $800,000. Part of that can be attributed to it being winter, and most people sell their houses in the summer.
So basically, if your house is priced under $600,000, it is likely that your home value will continue to increase. And the further you go below $600,000, the faster it will increase. If it is over $800,000, you may actually see a decrease – especially if your home is priced over $1.5 million where there is currently 16 months of supply.
The good news is that supply did indeed improve this year. The average months of supply for detached homes for all markets increased a bit from about 3.1 months to about 3.25 months. For attached homes, condos and townhomes, inventory levels increased significantly. Rising from about 2.25 months to 3 months of supply. The metro area has matured in that there are very few large tracts available for builders to buy and build large neighborhoods like they used to. So instead, they are buying smaller tracts and building up.
The metro area’s population has grown by at least 75,000 a year for the last eight years. It has created almost as many jobs. If it keeps going at this pace, then it will be hard for builders to catch up, especially in the lower-priced markets. If we do get into a recession, it could slow job creation down and actually help cool our low-inventory problem. But more and more, economists are backing off the sentiment that we are headed toward a steep recession.
Atlanta’s economy seems to continually improve. And even if we did drop into a recession, that could mean more relations to the Atlanta area, which has a lower cost of living than most other major metropolitan cites, and a highly elevated technology and transportation network.
If the metro area is to continue to grow, it will have to figure out how to house everyone that is going to keep moving here. It’s a good problem to have. Certainly much better than the other problem, where so many people are leaving cities that have too many houses on the market. The fact is, there is never really any balance, and it would be boring if all markets were right at the healthy six months of supply. So as rivers erode mountains, so must we try to balance the housing industry.
Geoff Smith is a mortgage banker with Assurance Financial focusing on residential home loans for refinances and home purchases.
*The views and opinions expressed in this column do not necessarily reflect the views of Assurance Financial Group