The Metro Atlanta economy and housing, of course, is a subset of the national economy and housing market. As such, it’s important to keep abreast of recent changes and future trends in the economy – and how they will ultimately affect the overall housing market. Let’s examine five areas of interest in the economy and what we can expect in the coming months.
The Federal Reserve recently opted not to increase short-term interest rates – at least for now. Despite Fed Chair Janet Yellen’s suggestion that the potential for a slight uptick has increased in recent months, the biggest action the Fed took was a notable inaction. While there were few clues about when the Fed may raise interest rates again, some economists say a rate increase could occur sometime soon. However, in the absence of improved economic indicators over the next several weeks, any rate hike could be delayed until closer to the end of the year. As a reminder, any expected increases in the Fed interest rates will probably do little to impact long-term mortgage interest rates available in the Metro Atlanta economy and housing.
The Metro Atlanta economy and housing market has recently endured a mixture of bad news and good news regarding home sales. The bad news is existing home sales continued to suffer, while the good news is new home sales have performed extremely well. A recently published report by the U.S. Census Bureau showed total sales of new single-family homes increased 12.4% compared to the previous month. In addition, sales were a whopping 31.3% higher than this time last year – the highest level since the fall of 2007.
Existing home sales comprise a higher percentage of the nation’s total real estate and housing activity. While new home sales flourished, sales of existing homes fell 3.2% from the previous month and are down 1.6% year-to-date, according to the National Association of Realtors (NAR). Ironically, mortgage interest rates are near all-time lows, helping to keep housing affordable in the face of increased home prices. Both the Census Bureau report and the NAR report listed low home inventory as ongoing problems. Limited existing home inventory has been characterized as the culprit in the decrease in sales in that category.
While home sales in the Metro Atlanta economy and housing market are expected to end the year on a high note – largely the result of a robust spring selling season – the housing market won’t reach its maximum potential this year. It’s clearly a case of supply not meeting demand. New construction, too, has failed to add enough units to the marketplace to keep pace with demand. Low inventory puts constraints on what willing buyers have available to purchase. In addition, new and existing homes that are selling are selling faster – and for more money. This usually means there are home buyers waiting in the wings to purchase when a wider variety and better choices become available.
Gross Domestic Product (GDP)
A recent report of the Bureau of Economic Analysis (BEA) revised the U.S. gross domestic product (GDP) downward for the second quarter of the year. After the first quarter’s growth of nearly 1% (0.8%), the BEA reduced the GDP growth to 1.1% annualized for the second quarter. Contributing to the downward revision were less-than-spectacular exports, which were also bumped down slightly. Imports were revised upward, however, and the relationship between exports and imports – as one economist explains it – all but cancels out each other. While exports are an economic growth plus, imports tend to stifle expansion. The bottom line: Revisions to the U.S. trade activity made little impact on improving the nation’s economy.
Business investment has now declined for three consecutive quarters. For their part, economic analysts continue to fret about business investment – especially since the recent trend of declining numbers represents the first time the U.S. has experienced three consecutive declining quarters in nearly seven years. Business investment is typically a good indicator of gains in productivity, which in turn produces profits for corporations and fuels greater earnings for the labor sector. Naturally, when wages improve, so do consumer confidence and spending.
A report recently published by the University of Michigan Surveys of Consumers stated U.S. consumer sentiment had fallen to its lowest point in five months. While the drop was only 0.2% over the previous month, it was down 2.3% for the year. University economists said the decrease in consumer sentiment was due, in part, to higher than expected expenses and smaller than anticipated gains in income – especially as they relate to younger aged households.
While economists stopped short of indicating to what degree the looming presidential election concerns have on the impact of consumer sentiment, there’s reason to suspect there is an effect. Consumers, for the most part, may be satisfied with their current financial situation, however they are concerned about the future and what changes – good and bad – the election results will bring over time. Among the concerns are the outlook for interest rates, tax considerations and global markets. Despite most consumers agreeing that a recovering job market, record low interest rates, steady incomes and an improving stock market all contribute to their financial health, few anticipate the current state of the Metro Atlanta economy and housing to continue.
The Job Market
The recently announced merger between beer makers Anheuser-Busch and SABMiller to create the largest brewing company in the world will eliminate thousands of jobs across the globe. While it may not immediately affect you – unless you’re an employee of one of these two companies – there are some potential ramifications. Economists believe the layoffs resulting from the merger could increase a slowly growing nationwide trend of companies trimming their workforces. A layoff report published by a respected employment consulting firm said that layoffs increased 19% during the month of July – for the second consecutive month. To put that into perspective, however, layoffs from January through June were down 8.7% compared to the same period last year. While the July layoffs were notable, there’s no immediate concern wholesale layoffs will continue. It is, nevertheless, worth keeping an eye on in the Metro Atlanta economy and housing, as well as elsewhere.
You can find more articles pertaining to the Metro Atlanta economy in the "Economy" section of articles just below Atlanta Real Estate Categories in the column to your right.
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If you’re renting in the Metro Atlanta housing market, now hear this: it isn’t easy to buy a house. It may be easier to stay put. That’s because home price gains are picking up, while rents are leveling off — despite the fact they’ve skyrocketed in recent years. Some economists predict that by the end of this year, rents could actually rise at a slower pace than income levels in many real estate markets throughout the U.S.
Zillow Weighs in on Metro Atlanta Housing
According to Zillow, the annual rent appreciation rate is forecasted to rise by 1.1% by December 2016. This would represent a decrease of 4.5% in the same appreciation rate for the year ending December 2015.
With home sales prices rising at what has been termed by some economists as “unhealthy and unsustainable,” rents aren’t expected to approach that rate of growth. The rising home prices are the result of fewer listings — a shrinking supply –– and increasing demand. In December 2015, the supply of homes on the market was the lowest in ten years. In addition, annual home sales price gains — meaning the average year-over-year increase in home value –– rose to 5.3%.
Metro Atlanta housing experts say the hot markets will continue to enjoy brisk activity during 2016. However, rents aren’t expected to rise as fast as they have in the recent past.
Despite the slowdown in rental appreciation, renters will continue to see gradual rent increases. They will just be less dramatic than the increases in the last several years. Strong growth in multifamily apartment dwellings in recent years has helped boost the supply of rental units in major metropolitan urban markets. The trade-off, however, is that developers have been slow to do the same thing in the smaller suburban markets. Renters in those markets seem to be struggling the most with short supply and higher rents. Rental property developers have shied away from settling for lower rents. They prefer to charge top dollar in order to recoup the high cost of construction — especially in the Metro Atlanta housing market where available land is expensive.
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Recent Metro Atlanta housing statistics — included as part of third quarter housing results reported by Zillow –– show that roughly a million U.S. homeowners finally owe less than their homes are worth.
Water Receding in Metro Atlanta Housing Market?
According to the Zillow report, the negative equity rate among homeowners in the U.S. dropped to 13.4%. That’s a 1% decrease from results compiled during the second quarter. The negative equity rate was 16.9% a year ago. Historically, the expected norm is a negative equity rate of 5% or less.
Housing experts say the quick rise in home values have helped the negative equity improvement. Home prices went up during October, increasing 6.8% from the same month a year ago. Nationwide, the home price increases have collectively lowered negative equity to almost $60 billion in the last quarter.
Despite these remarkable improvements, negative equity is still higher than it should be. And while a larger number of borrowers are now able to refinance because of increased values, a huge number of homeowners are still underwater. Analysts estimate over 6.5 million homeowners owe more on their mortgages than their home is worth. In addition, roughly 30% of U.S. homeowners with mortgages are still technically in a negative equity position. They lack the needed equity to make a down payment on their next home or can’t afford to sell their current home and move.
Some markets throughout the U.S. are faring better than others. Prices vary across the country and the recovery may be slower in some areas. Effective negative equity rates in U.S. housing markets range from a low of 8% to a high of over 30%.
A market with a higher negative equity rate has a smaller number of houses on the market. This usually impacts first-time buyers the hardest, since negative equity usually affects lower-priced homes. The nation’s supply of affordable homes for sale is short overall, but especially so for entry-level or “starter” homes. Metro Atlanta housing experts agree the biggest obstacle to a continued housing recovery is the lack of homes for sale.
With the number of repeat buyers continuing to shrink over the past ten years, there are challenges ahead. Tighter credit standards — including requiring higher FICO credit scores — have made it harder for many buyers to qualify for loans to buy larger or higher-priced homes. A decade or more ago, homeowners trading up to another home were in the 30-40 age range. Today they are much older, in the 50+ age range.
The housing outlook, therefore, is of concern to some. Inventory continues to drop resulting in a rise in home prices. And while home equity is improving, the gains often have a negative impact on the overall health of the Metro Atlanta housing market.
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The Commerce Department recently reported housing starts in the Metro Atlanta housing market and other parts of the U.S. dropped to a seven month low in October. And while single-family home construction in the South fell, a greater-than-expected surge in building permits indicate housing is still relatively strong.
A Closer Look at Metro Atlanta Housing
Housing starts decreased 11% to slightly over one million units (adjusted seasonally) representing its lowest level since March. Despite that news, October housing starts remained above one million units for the seventh month in a row — one sign of a continued recovery to the housing market.
Experts say a stronger labor market along with a greater number of young adults leaving the parental "nest" has given increased support to the housing sector.
While residential construction makes up only about 3% of the gross domestic product (GDP) of the U.S., housing greatly affects the overall economy. Higher home prices mean increased household net worth and increased consumer spending. In addition, housing has helped the GDP grow for the last eighteen months. It has also cushioned the blow of weakened manufacturing.
Single-family home starts dropped 2.4% to 722,000 units. Multi-family housing starts dropped a little more than 25% to 338,000 units.
Despite housing starts suffering in some areas, the number of actual building permits issued was encouraging. Building permits increased 4.1% to a 1.15 million unit level last month, with single-family permits rising almost 2.5% to the highest level since December 2007.
Building permits for multi-family units increased nearly 7%, giving housing experts optimism that the market is on stable ground. The increase in permits for multi-family units — primarily apartment buildings — is a result of pent-up demand for rental units.
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Rent increases seem to be the norm rather than the exception in the Metro Atlanta housing market. While increases affect renters at all income levels, those near the bottom are being hardest hit.
Rent Inflation Affects Metro Atlanta Housing
Higher rents are having a greater impact on the lower-cost housing units than on the higher-cost units say researchers for the Federal Reserve Bank. They reviewed national data compiled by the American Housing Survey from 1989-2013 to estimate the rate of inflation for rents and utilities. Their findings concluded around 32 million dwellings were constructed during that timeframe. Roughly 10.8 million were built to be marketed to the highest income earners, compared to only 3.1 million targeting the lowest income group.
The researchers further conclude increased numbers of new units attracting high-end earners is likely responsible for higher vacancy rates. Less competition among tenants helps mitigate rent inflation in that income group. Despite rents being higher for those new units, as a percentage it usually doesn't rise as much as the lower-cost rental units. The reason? Supply of rental units at the lower end of the spectrum is more apt to occur from rents that were once higher, but have been lowered into the next bracket. The result is a "trickle-down" effect, meaning those units will probably still have higher rents than the lower-end housing, pushing up rent inflation for that segment.
During 2011-2013 rent inflation in the lowest bracket represented in the data was roughly 16%. Inflation in the highest bracket was -.4%.
This comes as little surprise to renters in the Metro Atlanta housing market. Annual rent growth during September was 5.2%, representing the highest increase since 2011 and marking the eighth consecutive month the rate has been 5% or more.
Based on a nationwide survey by property rental website Rent.com, property managers expect to raise rents as much as 8% next year. This is due to an anticipated rise in demand and a drop in vacancies. Vacancy rates for rental units across the nation recently dropped to 6.8% — the lowest in twenty years.
Further affecting the rent inflation dilemma is that construction of multifamily housing came to a surprising halt during the housing crisis. New units recently added are barely meeting pent-up demand. Rents and occupancy levels are enjoying all-time highs, driven in part by higher demand and lower supply. While new construction permits for multifamily units are within 1% of where they were during the same month last year, most of the new supply is in higher-priced markets. The urban centers of major cities have benefitted, but not renters in suburbia or in less-populated cities desperately in need of more affordable rental units.
Metro Atlanta housing experts say more than 25% of renters currently spend over 50% of their income on rent.
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The US Commerce Department reported that sales of new single-family homes dropped to a near one-year low last month. The recent setback occurred despite two consecutive months of sales gains. Industry experts say Metro Atlanta housing remains on firm ground thanks, in part, to a rise in home prices.
A Closer Look at Metro Atlanta Housing
The 11.5% drop in new-home sales was the lowest since November 2014. While the new-home sales news is less than encouraging, it has some housing insiders scratching their heads as other reports show a brighter outlook for the new-home sector of the Metro Atlanta housing economy. One explanation for the downturn is that new-home sales can fluctuate on a month to month comparison because of small sample extractions.
One housing industry expert labeled the recent new-home sales data “unreliable,” claiming that a number of other indicators pointed to continued steady growth in the sector. Recent existing-home sales data and moderate-to-strong housing starts are among the reasons the Commerce Department report could be an anomaly. In addition, the median price of a new home rose 13.5% in September from last year, reaching a high for 2015 of nearly $297,000.
The increase in home sales prices would indicate either a change in the number of more expensive houses, or that builders are raising prices on their product offerings. Soft demand, therefore, would go hand in hand with slower price gains.
A good Metro Atlanta housing market continues to support growth in overall consumer spending resulting from higher household income and wealth. The US economy reported growth of 3.9% in the second quarter of 2015. Economists previously predicted new-home sales falling slightly, but only to a level of 550,000 units. The seasonally-adjusted level was actually 468,000 last month. However, sales increased 2% compared with September of 2014.
The new-home supply in the Metro Atlanta housing market lags behind the most recent housing boom total, with inventory being less than half of what it was at that time. Using the pace of September’s sales data, the new-home supply would take 5.8 months to fully clear, up from a 4.9 months estimate during August.
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Indirectly addressing concerns that the current Metro Atlanta housing market — among others across the nation — is destined to suffer the woes of the housing collapse of less than a decade ago, Former Federal Reserve Chair Ben Bernanke recently shared his thoughts on the subject.
Has Metro Atlanta Housing Learned a Lesson?
Bernanke said there were a number of factors that led to the housing bubble and the 2008 financial crisis. He has been quoted as saying "financial regulatory supervision should be the first line of defense against asset price bubbles and other risks to financial stability." While the Federal Reserve was largely criticized for their monetary policy prior to the crisis, Bernanke contends the policy wasn’t the main reason for the housing bubble. If anything, the Fed may not have done enough to regulate mortgage lending at the time.
He cited growing political support during that time for sub-prime lending as a means to provide the “American Dream” of home ownership. The positive end, therefore, justified the questionable means. And while government regulators were adamant in their efforts to get rid of predatory lending they turned a blind eye toward other bad lending practices. As a result, the Metro Atlanta housing market suffered greatly.
Bernanke seems satisfied that a number of specific shortcomings were addressed as a result of the housing bubble and ensuing collapse. In fact, he says, some people feel that mortgages are too hard to get — an “overcorrection” has resulted in trying to prevent a recurrence of the past. Yet he contends the financial system is stronger and banks and other lender capital is higher, creating a more resilient system than before.
Metro Atlanta housing is obviously affected by interest rates, and recently, the much anticipated rate hike by the Federal Reserve was once again put on hold because Fed Chairwoman Janet Yellen said she thinks the housing market is still not where it needs to be.
Jeff Taylor of Digital Risk appeared on Fox Business News after Yellen's comments about the housing market being depressed or distressed, countering her assertion that the housing sector is depressed, citing that housing indicators are at all-time highs.
Many in the Metro Atlanta housing sector have actually been hoping the Fed WOULD raise interest rates. Taylor points out some of the reasons why this thinking actually makes some sense…
Stay abreast on what the Fed does in the future with interest rates by continuing to follow us on Twitter and Facebook. We post daily there. Also stay abreast of the Metro Atlanta housing market by checking here frequently for more up to date news as it affects Metro Atlanta housing.
The Metro Atlanta housing outlook continues to remain positive. The Commerce Department released information confirming that the sales of newly built homes rose more than 5% in July. In addition, prices for new homes were up. Homebuilders cite two reasons for the recent higher traffic and sales activity:
1.) The much anticipated rate increase by the Federal Reserve
2) Lower new construction home prices to more closely match mortgage demand
Metro Metro Atlanta Housing Market Could Cool Down
Despite this summer's success, some analysts warn that recent market volatility may be creating a slowdown in the Metro Atlanta housing market. Some homebuilders aren't quite as bullish on the remaining months of 2015.
The recent instability in the global economy — specifically China's stock market woes — has made the expected rise in the Federal Reserve's federal funds rate less likely. While on the surface that's a good thing, Metro Atlanta area housing experts fear the lack of movement in rates will result in a reduced sense of urgency in prospective homebuyers.
Home prices have remained relatively high, too, buoyed in part by the regained consumer confidence in the stock market after a shaky week following China's record market plummet. Despite expected rates remaining unchanged, homebuilders say consumer caution will trump interest rates.
Ironically, a rise in interest rates would potentially have given the Metro Atlanta housing market a boost. Historically, such an event signals an end to the "good old days" as homebuyers move to finally purchase before rates increase further.
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