Economic Factors Affecting Real Estate – A National Perspective

This past February, I attended the Keller Williams Family Reunion in New Orleans, along with 15,000 other “Type A” real estate agents. One of the highlights of this convention is Gary Keller’s Vision Speech. He makes this speech to educate us, so that hopefully, we will be the economist of choice in our market.

“You have to look at the past to predict the future”, says Gary Keller, “Mortgage rates are national rates.” Keller said, “While the government does not exactly know how to raise rates, but, low rates are helping affordability in most U.S. markets.” Mortgage rates averaged 3.85 percent in 2015, down 32 base points from the 2014 average. Since the Federal Reserve is now actively raising the federal funds rate, it is expected there will be upward pressure on mortgage rates in 2016.

Last year was the 5th best year in home sales in the history of home sales due mostly to the mortgage rates being so low. In 2015, 5.26 million homes were sold, making it the best year for home sales since 2006, which was the height of the market. In 2016, some slowdown in sales is expected as interest rates slowly increase.

 The median home price for 2015 was $222,400, which was an increase of 6.8 percent from 2014. This increase was largely attributable to lower interest rates in 2015, compared to 2014. This figure puts home prices right on the edge of what is considered a sustainable rate. Price growth is estimated to be between 3 to 6 percent in 2016. 

While wages in the US have grown 1-2% per year, and, inflation is at 4 %, and, home prices are increasing at almost 7 %. (the target rate for appreciation is 4%), home prices are outstripping  people’s  ability to afford a home  Also, with student loan debt at 75 percent of all recent college graduates being strangled by an average of $363 a month in loan payments, affordability is completely strangled for students, and, thus adding to slowing the housing market and the economy.

The months’ supply of housing inventory loosened slightly in 2014.  This helped price growth get back to normal levels.  A balanced market is when there is six months of inventory. 

Due to consistently low mortgage rates, affordability was flat in 2015, in spite of increasing home prices. KW estimated that payment for the average family was approximately 15 percent of their annual income.

For first-time home buyers, the monthly mortgage payment was approximately 25 percent. Looking to 2016, affordability will likely continue downward as interest rates and prices continue to rise.

So, while the US as a whole is enjoying a robust real estate economy, Atlanta’s real estate economy is even more robust than the rest of the country.  .Homes sales price increases are with the rest of the country, with median sales price s slightly higher at $230,000, and, months of supply much shorter at 3.3 months.  Affordability, especially inside the perimeter, is lower, as well.

Although the real estate market is expected to do well for most of the country, a few northern areas are already experiencing a slowing.   With so many announcements of big new construction in the metro Atlanta area,   I believe that Atlanta will flourish through 2016 into 2017, barring any unusual circumstances. Because of the busiest airport in the world, low priced energy costs, the third busiest film production, and a government climate that encourages business relocation here, Atlanta will always the last into a slowing economy and the first out.