Will rising interest rates kill Atlanta’s boiling real estate market?
MarketNsight presents two potential scenarios
— John Hunt, Principal at MarketNsight
ATLANTA, GEORGIA, USA, April 5, 2022 /EINPresswire.com/ — In 2018, MarketNsight was one of the first in the country to sound the alarm about the effects of rising interest rates on housing ; rates rose from 4% in January to 4.8% in October of the same year. At the same time, new pending sales began to decline and turned negative when rates peaked in October of that year. New pending sales remained in negative territory until May 2019, when rates fell back to 4%. None of this was a coincidence.
From 2018 to 2019, there was a direct correlation between rising interest rates and falling housing demand, but that was then, and this is now.
Each market has a “pilot”
MarketNsight analysts say the housing market has seen three distinct drivers since 2018, and each of these drivers has taken the market to a place it has never been before, a place where all accepted rules have been broken. Has anyone really seen the pandemic cause a massive housing boom?
“We plan to make a living, and we didn’t see it coming,” said John Hunt, director of MarketNsight. “It would be a mistake to think that rising interest rates will necessarily lead to a massive decline in housing in this unprecedented inventory-free environment.”
Market focused on interest rates – 2018 and 2019
In 2018, the inventory was abundant compared to today. When rates rose 80 basis points from January to November of that year, the effective price increase and lack of urgency sidelined some potential buyers and demand for new homes fell 10 % year over year. The Fed reversed its tightening policy for 2019 and started cutting rates. By May 2019, rates had fallen to 4% and demand resurfaced (see Chart 1).
Pandemic Driven Market – 2020 to May 2021
At the end of 2019, millennials – the sleeping giant – actually started buying in droves. After a two-month break for the pandemic-related shutdown, they picked up where they left off. Combined with the need created by the pandemic for larger and more flexible spaces, this has led to an unexpected explosion in demand for housing.
Market driven by supply (or lack of supply) – June 2021 to present
In just 12 months, from May 2020 to May 2021, we went from just over three months of supply to 0.7 months of supply (see chart 2). It’s essentially the same as zero, because there are only a few homes that will never sell.
“We’ve never been here before,” Hunt said. “Zero inventory is a huge game changer. Demand is so high above our ability to supply that any effect of rising interest rates will likely be muted.
In February 2022, the Atlanta market returned to 0.7 months of supply (see graph 3). Reading two scenarios for the rest of 2022 shows how real the supply shortfall is.
The first scenario assumes that 30-year rates will reach 4.8% by the end of this year, leading to a 10% drop in demand and a 10% increase in supply. It’s the same thing the Atlanta housing market experienced in 2018.
“As you can see, that wouldn’t even move the needle on months of supply, still leaving us with less than a month,” Hunt said.
The second scenario assumes a drastic drop in demand which should not occur. Even if demand is halved and inventory doubles by the end of this year, Atlanta would still have less than three months’ supply.
If the second scenario had occurred in 2019, when there was 430% more inventory, it would have pushed months of supply to 13 and resulted in an annual inventory surplus of over 45,000 units. That’s the difference a close to zero inventory makes.
“After a decade of underbuilding, and especially underdevelopment, we find ourselves in an inventory crisis of epic proportions,” Hunt said. “For this reason, we believe that any effect of a rate hike of even as high as 5% will be relatively muted.”
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MarketNsight is dedicated to helping its clients make informed decisions regarding land purchases and product pricing. Its groundbreaking Feasibility Matrix provides a one-stop-shop for assessing the feasibility of a new housing community by providing ranking reports, lot and gross land sales data, regression analysis, and mortgage data.
MarketNsight currently serves over 35 cities in seven states – Alabama, Florida, Georgia, North Carolina, South Carolina, Tennessee, Texas and Virginia. Look for more cities to be added soon!
To schedule a demonstration of the MarketNsight Feasibility Matrix® or mortgage matrix®, call 770-419-9891 or email [email protected] For information on upcoming keynotes from MarketNsight and Hunt, visit www.MarketNsight.com.
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