Year-End 2021
Atlanta Housing Market Analysis
Atlanta Housing Market Analysis
Despite ongoing challenges concerning affordability, supply, inflation, and COVID-19 variants, 2021 was a very positive year in terms of economic recovery for the Atlanta MSA. The Atlanta region added nearly +135,000 jobs in 2021, bringing the unemployment rate down to just 2.8% (considered full employment) by the end of December. The largest job gains in recent months have come from the sectors hit hardest by the initial onset of the pandemic last year – Leisure & Hospitality, Trade & Transportation, and Business & Professional Services. The MSA got an additional boost during 2021 with Visa and Microsoft announcing major expansions of their Atlanta-based workforces that will ultimately bring thousands more high-paying professional services and tech jobs to the region.
Bolstered by improving economic conditions and sustained demand from potential homebuyers, Atlanta’s housing market improved in line with the larger economy, posting notable gains in major metrics like housing starts, new home closings, and lot deliveries. In 2021, Atlanta’s housing market was driven by the following factors:
Accelerating Price Growth: As seen in most major Metros across the U.S., both new and existing home prices increased significantly in 2021. The average home sale price hit $447,000 in December, a +19.2% increase over the average price in December 2020. Rapid home price growth is being fueled by a number of factors including low housing inventory (-22.3% YoY), strong demand, and increasing land and construction costs.
Low Inventory & Supply: Atlanta is combatting a shortage of both developed lots and available homes, and this critical lack of inventory is helping to drive the accelerated price growth noted above. Low finished lot inventory has resulted in fewer new home deliveries and higher prices for land suitable for residential development, which builders have attempted to combat by shifting their focus to suburbs farther from the urban core. Depleted inventories of new and resale homes, along with increasing construction costs passed from the builder to the buyer, has contributed to skyrocketing home prices across the Metro area.
Expanding Suburbs: Atlanta has been famous for its sprawl since the 1960’s, and it shows no signs of slowing anytime soon. The lack of finished lots and land suitable for development closer to the urban core, combined with people’s newfound ability to work from home and avoid commuting entirely, has opened up outer suburbs that were always considered too far from the city center to be viable for large-scale residential development. For context, 8 of Atlanta’s top 10 performing communities in 2021 are located more than 30 miles from downtown.
Sources: U.S. Bureau of Labor Statistics, Business Insider, Trulia, Zonda/Metrostudy, Federal Reserve Bank
Mortgage Rates
Mortgage rates increased steadily throughout 2021 after reaching all-time low levels in 2020. 30-year mortgage rates closed out the year at 3.11%, an increase of +16.5% over the last 12 months. A rate of 3.11% is still well below the 20-year average (4.74%), but rates are expected to increase further in 2022 based on statements from the Federal Reserve indicating multiple rate hikes in the year ahead to combat growing concerns around inflation. This could result in an uptick in home-buying activity in the early part of 2022 as potential buyers look to lock in low rates before it’s too late.
Active Listings
Active Listings: Total
Single-Family Housing Starts
New Single-Family Home Sales
Single-Family Home Completions
Median Sale Price: Existing Homes
Median Sale Price: New Homes
Housing Affordability
Home Price Index
New Home Supply (Months)
Existing Home Supply (Months)
Conclusion
Despite the myriad of challenges faced by the economy over the last 12 months, 2021 will go down as an overwhelmingly positive year for the U.S. housing market.
Strong demand from the second half of 2020 carried into 2021, propelled by the Work-from-Home movement and millions of Millennials reaching peak “home-buying” age – both of which will continue to drive demand and home purchases for the foreseeable future. And although builders were confronted with materials and labor shortages, cost increases, and inventory issues through most of the year, they still delivered 30,000+ more homes in 2021 than they did in 2020.
The Federal Government and industry organizations are working together to find solutions to some of the persistent issues impacting new home construction, and the most recent metrics indicate that the overall housing market is recalibrating to more sustainable levels of activity. This should allow builders to deliver on their backlogs and relieve some of the pressure brought on by critically low inventory levels of both new and existing homes.
“Affordability challenges will keep prices from advancing at the same pace we saw in 2021 even as ongoing supply-demand dynamics mean prices continued to grow nationwide.”
Danielle Hale
Chief Economist, Realtor.com
Increasing Prices and Declining Affordability – Rising home prices are generally an indicator of a healthy, expanding housing economy, but they become an issue when price growth outpaces wage growth like we are seeing in today’s market. In addition to rising construction costs, steadily increasing interest rates, which are expected to increase further in 2022, are adding hundreds of dollars to monthly mortgage payments. Because there is no short-term solution in hand for the issues that are driving this unprecedented price growth, namely low inventory and supply chain bottlenecks, we expect that prices will continue to climb and affordability will continue to decline during 2022.
Low Home and Lot Inventory – The pandemic-induced home buying frenzy has shined a bright spotlight on the fact that the U.S. more than a decade ago. has been under-delivering both finished lots and new homes since coming out of the Great Recession. Finished home inventory was quickly gobbled up in the second half of 2020, and most builders found that their existing finished lot inventory was no where near substantial enough to keep pace with the sustained demand in 2021. Lot development across the U.S. ramped up significantly in 2021 to combat this issue, but 12+ month development times are not providing the short-term relief that builders so desperately need, and most of the lots currently under development are already spoken for by builders and therefore won’t provide much of a boost to the finished lot inventory.
Easing Labor and Supply Chain Bottlenecks – The diminishing effects of the pandemic should lead to a rebound in construction labor. According to the NAHB, there are currently more than 400K construction-related job openings, and an additional 350K openings will need to be filled this year to accommodate retirements and those otherwise leaving the industry. While supply chain issues and associated price increases won’t disappear overnight, they are expected to ease significantly by the second half of 2022 with sustained increases in production of scare items like softwood lumber and improving wait times at U.S. ports.
“All markets are seeing strong conditions, and home sales are the best they have been in 15 years. The housing sector’s success will continue, but I don’t expect 2022’s performance to exceed 2021’s.”
Lawrence Yun
Chief Economist, National Association of Realtors
For information about market research & reporting, including custom market reports, please contact Katie Fidler at katief@stbourke.com.