Metro Atlanta Residential
REAL ESTATE FORECAST 2022
ATLANTA LIFE Things that impact our life and our real estate
2 | HARRY NORMAN, REALTORS®
POPULATION IS POPPIN’
BEST STATE FOR DOING BUSINESS
Georgia population is now 10.8M, making it the 8th most populated state in the U.S. with the 5th highest growth July 2020 to July 2021. Metro Atlanta had the 3rd highest growth rate of large metros in the last ten years.
Georgia is #1 state in the nation for 8th consecutive year. Georgia also earned the #1 ranking in overall cost of doing business, cooperative and responsive state government, competitive labor environment, workforce development programs and available real estate.
BUSIEST AIRPORT IN THE U.S., SECOND BUSIEST IN THE WORLD
WE ARE FORTUNATE
Hartsfield-Jackson International Airport serves 150 U.S. destinations and more than 75 international markets in 50 countries.
TECH LEADERS
Metro Atlanta is home to 16 Fortune 500 companies. 29 companies are included in the Fortune 1000.
MUSIC TO OUR EARS
Atlanta is the #1 Growth Potential Metro Area Tech hub. It is also ranked #1 Metro for Tech Diversity.
Atlanta is home to over 300 recording studios, 60 music venues, and 30 festivals that showcase long beloved, popular, and new talent.
MORE THAN YOUNG AT HEART
DRIVING THE FUTURE
The median age in Atlanta is 36.2 compared to a U.S. median of 37.7. Atlanta is a top 5 large market for millennials, the largest generation of current homebuyers.
Rivian is investing $5B in an electric vehicle facility in Georgia. In the last five years, 78 automotive-related companies have located or expanded operations in Georgia, creating thousands of new jobs.
MORE BUSINESS = GROWING OFFICE SPACE
LOVE THY NEIGHBOR
Around 4,761,000 new office units were delivered in both the Atlanta urban core and suburban markets in 2021, around two-thirds of which were in Midtown.
Atlanta ranks in the top 20 cities considered Most Neighborly, based on satisfaction with neighbors, sense of community, and involvement in community activities.
2022 METRO ATLANTA RESIDENTIAL REAL ESTATE FORECAST | 3
2021, A CONTINUATION FROM 2020 As life around us continued to be a challenge in many ways, 2021 went down as one of the best years in real estate history. That is if you owned or were selling property, with the average homeowner across the U.S. gaining $56,700 in equity. If you were looking to enter the market, conditions may not have been as favorable. While money was ‘cheap’ thanks to low interest rates and stimulus benefits, prices moved up fast while inventory moved even faster.
Mortgage Interest Rates JUSTIN MESSER. Chief Operating Officer. Prosperity Home Mortgage
One word will be on the tip of the tongue in 2022 for any interest rate watcher or CNBC talking head: Inflation. For the homeowner, inflation is generally a great thing and we call it home price appreciation! When strolling the aisles of Whole Foods and our favorite organic crackers are $8 vs. $7 last week, then we all the sudden aren’t big fans. Inflation is simply the concept that stuff will cost more tomorrow than it does today.
In many ways 2021 was a continuation of 2020. The traditional seasonality of the market was again upset by the pandemic, and the winter low season that separates the years lasted only a fleeting moment, if at all. Many buyers carried over from 2020 and entered the market early with pent up demand. This drove aggressive negotiations and multiple offer scenarios as demand continued to outpace supply, and at an increasing rate.
Some inflation is a good thing and necessary to sustain a healthy economy. However, too much of a good thing can cause problems. The Federal Reserve (the Fed) generally has the mandate to control inflation and keep it from spiraling out of control. They aim for ~2% inflation on average but it can be a little less or a little more. Currently, inflation is sitting around 6.8% year over year and we’re at a bit of an inflection point on where it will play out in 2022.
HOME PRICES
The Fed has already shown their hand that they will be increasing interest rates in 2022. The real question is how quickly they will hike rates and how quickly they will remove their other forms of support that are keeping interest rates low. Current rate projections have the average 30-year fixed rate mortgage rate for 2022 somewhere between 3.2% – 4.0%, up from ~3.0% on average in 2021. The wide range in projections is a good reflection on the uncertainty of the path of inflation and reaction by the market.
Nationally, housing prices increased on average about 15-20% across the year. Select markets nationally saw even more profound price appreciation in the range of 25-30%. In Atlanta the results were similar to the national average. The average sold price in December 2020 for a single-family home was $372,000 across greater Atlanta1. Looking at the metro area2 only, this was $418,000. At the end of 2021 greater Atlanta’s average sold price had experienced a 20% increase to $446,000. Metro Atlanta similarly rose 21% to $504,000 average sold price. The condo market experienced a similar trend. In December 2020, the average sold price of a condo was $276,000, increasing 15% to $318,000 at the end of 2021. Price appreciation is expected to again be positive in 2022. After consecutive years of record setting jumps, the high and fast appreciation of the last two years is anticipated to transition to a much more modest level. According to housing market forecasters below home price growth is predicted to increase in the range of 3-7%.
SOURCE Zelman & Associates Corelogic HPI Realtor.com NAR Fannie Mae Freddie Mac
2022 3.0% 6.0%3 2.9% 5.7% 7.4% 7.0%
1. Greater Atlanta refers to all FMLS 2. Metro Area refers to 6 Core Counties: Fulton, Gwinnett, Dekalb, Forsyth, Cobb, Cherokee. 3. Dec 21 to Dec 22
SOURCE Fannie Mae Freddie Mac Mortgage Bankers Association
2022 3.2% 3.5% 4.0%
2023 3.5% N/A 4.3%
Should inflation regulate and slow, we believe the Fed can take its time in raising interest rates and pulling their support for keeping interest rates low. If inflation continues to accelerate, then we should be prepared for much more rapid moves to fight it. Our projection at Prosperity falls closer to Freddie Mac’s projection as we believe that inflation will regulate, and the Fed will be able to act a slower and more deliberately. After nearly 2 years of predictable mortgage rates, however, we do believe we are in for a bumpy ride that will end with rates ~.35.40% higher on average than 2021, but close to where we already sit as of the start of 2022. It’s important to remember that a .375% increase in rate on a $500,000 loan only equates to about $137/ month in increased payment on a 30yr fixed rate mortgage. So, with projected increase in wages across all industries, we anticipate this reset in mortgage rates to be more of a sticker shock moment to buyers currently in the process vs. a material headwind to the real estate market.
The above information is believed to be accurate but is not warranted.
HOME INVENTORY Unlike interest rates that can be adjusted to help correct a bullish market, home inventory is a factor that is much more difficult and slower to influence. Throughout the past two years, low inventory has been a challenge, and while the level of shortage has varied across markets and price brackets, a lack of inventory has been a universal constant. To illustrate the severity of the inventory shortage, looking back to 2019 provides a pre-pandemic, more standard baseline. However, it’s worth noting that 2019 was also a strong year for Atlanta real estate which makes these metrics even more remarkable. Traditionally, a balanced market would be somewhere in the vicinity of 5-6 months of inventory, however as you can see below, even our 2019 inventory levels were already about 50% below a balanced market. In 2020 these levels reduced by another ~50-60%, and at the end of 2021 Metro Atlanta inventory was 65% below the level two years prior. Demonstrating this as a universal situation, the table below shows that regardless of location, this was an Atlanta-wide challenge, and even more apparent in Gwinnett and Forsyth which saw declines of 70% and 82% respectively.
MONTHS OF INVENTORY COUNTY
DEC-19
DEC-20
DEC-21
VARIANCE TO 2019
2.7 2.6 2.4 2.3 2.6 2.8 3.1 2.3
1.2 1.2 0.9 0.9 1.3 0.8 1.9 0.7
1.1 0.9 1.0 0.9 0.9 0.5 1.2 0.7
-59% -65% -58% -61% -65% -82% -61% -70%
Greater ATL Metro ATL Cherokee Cobb Dekalb Forsyth Fulton Gwinnett
NATIONAL AND LOCAL ECONOMY Looking at the national economy, according to the Selig Center 2022 Economic Outlook, “In 2021, we estimate that inflation-adjusted GDP increased by 5.5 percent, which substantially exceeds the U.S. economy’s long run—1970 to 2020—rate of growth of 2.7 percent.” This positive economic position is expected to continue through 2022 driven by strong job growth, consumer confidence leading to increased consumer spending and less saving, and strong housing market performance. Georgia’s economy has performed well throughout the past two years, holding strong and regularly delivering growth ahead of national average. Rebounding resiliently from the economic impact of the pandemic at the end of 2021, Georgia’s economy was operating at 95% of pre-pandemic normal levels and is expected to be at 100% mid 2022. In 2022, it is predicted that GDP in Georgia will increase by 4.3%, outpacing the anticipated 4% national growth. Unemployment rates will continue to be favorable nationally, but will be even stronger in Georgia where it is anticipated to average only 3.2% (4% is considered full employment). Metro Atlanta looks even more positive with unemployment dropping below 2.5% late 2021. In talking about Georgia, Selig Center states “Covid-19 is the main risk to growth. On the positive side, consumer spending out of accumulated savings, the housing boom, federal stimulus, and economic development project announcements could be stronger than we expect, which would boost the pace of growth.”
FMLS: All residential
MARKET SNAPSHOT
20
%
Average Home Appreciation for Solds 2021
0.9
Average Months of Inventory in Metro Atlanta 2021
4.3
%
GDP Increase
Predicted in Georgia 2022
3.2
%
Unemployment Average
Anticipated in Georgia 2022
2022 METRO ATLANTA RESIDENTIAL REAL ESTATE FORECAST | 5
HOUSING AFFORDABILITY A topic of frequent headlines is Atlanta’s housing affordability. Throughout 2021, based on average home price appreciation of 20% against average income increases estimated at 7%, the net result was a decline in housing affordability. At the end of 2020 the average cost of home ownership in Atlanta was 23.8% of income, at the end of 2021 this had climbed to 28.7%. Looking to other markets for context, it becomes apparent that Atlanta and greater Georgia remain in a relatively positive position. While it’s true that the share of income needed for owning a home has gone up, we remain more affordable than many areas across the U.S. Owning a home in Denver, CO will cost an average of 35% of your income, in Austin, TX it’s over 37%. In places like Orange County, CA the cost can rise to over 60% and in Kings County (Brooklyn), NY, it was 78% of average income.
NEW CONSTRUCTION
THE LUXURY MARKET
Single family home construction permits have been on an upward trend for the last 10 years. Even with this being the case, demand resulting from migration, population growth, and limited resale inventory was much greater than the supply. Since December 2019, the number of new construction homes for sale in greater Atlanta has declined 75%. Across that same two-year period, months of inventory declined almost 60%, while the average sold price jumped 28%. This trend is similar for both single family homes and condos.
Initial hesitancy at the onset of the pandemic lasted longer in the luxury market than the broader housing market. However, after a period of caution the luxury end of the market bounced back, rebounding to a position stronger than pre-pandemic as consumer confidence grew. The financial impact of the pandemic did not affect high income brackets as much as others, as consumers in this segment found themselves with greater disposable income, which in past years was usually spent on travel and leisure. These funds were frequently directed instead to home upgrades as people sought out homes to better meet their changing needs. Luxury inclusions became high demand including chef’s kitchens, greater outdoor entertaining spaces, home gyms, plus areas for everyone to live, work, and play safely without leaving the home.
Looking across Georgia, most new construction sales are coming from Gwinnett and Fulton counties. New home communities with 100 or more closings are grouped to the South and Northeast of the Atlanta area. Over the past 3 years, the price ranges that have experienced the largest growth in annual housing starts is in the $350-$750k range, with housing starts in the price bracket of $400-$450k more than doubling in the past two years. Adding extra pressure to the mounting demand for new construction will be issues with supply shortages. Variable costs of materials and on-going scarcity were a challenge in 2021. While 2022 should see improvements, continued delays are expected.
6 | HARRY NORMAN, REALTORS®
In 2021, the number of homes sold in Atlanta over $1M was 65% greater than 2020 and 86% greater than pre-pandemic 2019. The time on market in December 2021 was only 49 days as homes sold twice as fast as two years prior. Price appreciation was also strong at the high end of the market, with the median price in December 2021 delivering 8% growth on the year prior.
ATLANTA MARKET FORECAST The outlook for the Atlanta housing market continues to be positive for 2022. Atlanta was identified as one of the top 10 Markets to watch in 2022 by PwC Emerging Trends in Real Estate report where Atlanta was recognized as a magnet market. Magnet markets are defined as “destinations for both people and companies and growing more quickly than the U.S. average in terms of both population and jobs.” It is anticipated to again be a continuation of the year prior, but with greater signs of market seasonality making a return. Inventory levels are expected to improve as sellers take advantage of the opportunity to capitalize on equity growth. These inventory improvements will only be moderate relative to strong buyer demand driven by historically favorable interest rates. As a magnet market, Atlanta will see high levels of investment property and second home purchases. The affluent accumulated more wealth during the pandemic, and during a time of volatility and travel restrictions, real estate became a favored outlet for investment. Atlanta is one of the most robust investment markets in the U.S., and in the third quarter of 2021 investor share of Atlanta home sales topped 30%. Atlanta price appreciation is expected to be moderated by measures to address higher than national average inflation and housing affordability challenges. This will result in home price growth deceleration, meaning home prices will
continue to increase, but the rate of growth will be lower than experienced in 2021. With its continued growth and appeal, Atlanta price appreciation will be at the higher end of the national spectrum with market wide averages in the range of 7-10%. Demographics will influence market dynamics. Many baby boomers, with strong home equity, will move to retirement. This is expected to free up traditional single family home inventory, while at the same time increase demand for higher end, lifestyle-focused retirement communities. Millennials, who are the largest home buying segment, moved back home in record numbers during the pandemic, creating opportunity for savings. These accumulated savings are expected to drive increased demand in areas and price brackets with a large share of 1st Time Home Buyers. The desire for a home that offers more is expected to be a permanent shift, regardless of the future of the pandemic. People will return to offices but the demand for home offices will continue. 6% of people worked from home before COVID-19, approximately 50% at the height of the pandemic, and it is estimated that about 15% will remain permanently remote with about 25% in some form of hybrid situation. The greatest design trend centers around bringing the outside in. As people spend more time at home, they want to stay connected to nature. Expect to see a lot of green colors, indoor gardens, and patios as a direct extension of living areas.
THE BOTTOM LINE Atlanta can expect the strong housing market to continue. With moderate price appreciation, supported by population and economic growth, low unemployment, and relative affordability, Atlanta is expected to outperform national housing market growth.
2022 METRO ATLANTA RESIDENTIAL REAL ESTATE FORECAST | 7
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OVER 6,800 UNITS IN 2021 which means we helped...
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409 BIRDS
How can we help you in 2022? *Based on national averages.
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CAROLYN GARRETT D: 404-210-1291 O: 404-261-2700 Carolyn.Garrett@HarryNorman.com
ATLANTA’S FIRST IN LUXURY Source: 1. NAR (National Association of Realtors), 2. Zonda, 3. Georgia Trend, 4. CoreLogic, 5. Metro Atlanta Chamber, 6. Atlanta Business Chronicle, 7. Atlanta Journal Constitution, 8. Realtor.com, 9. Georgia.org, 10 Federal Reserve Bank of Atlanta, 11. Realtor Magazine, 12. PwC Emerging Trends in Real Estate 2022, 13. Selig Center for Economic Growth: The 2022 Georgia Economic Outlook, 14. Luxury Portfolio SOLRE 2022: State of the Luxury Real Estate Market, 15. Urbanize Atlanta, 16. Midtown Atlanta Powered by Midtown Alliance, 17. Zelman & Associates, 18. Keeping Current Matters, 19. RISMedia, 20. Fannie Mae, 21. Freddie Mac, 22. FMLS.com, 23. Trendgraphix. The information within is believed to be accurate but is not warranted.