Modern lifestyles shift demographics and preferences
MarketNsight, a leading real estate data and analysis provider, presented its state-of-the-market report and 2024 predictions during Market Watch.
"Nationwide job growth of nearly 3 million jobs in 2023 underscores the urgent need for increased housing supply to accommodate new workforce entrants, whether they rent or buy," said John Hunt, Principal and Chief Analyst at MarketNsight.
The Federal Reserve's indication of rate cuts in 2024 brings a new dynamic to the market, suggesting a continued growth trajectory and lower mortgage rates.
Mortgage rates spent 16 consecutive weeks of rates over 7% since August and hit 7.76% the last week of October. This led to low pending sales due to a two-week lag effect. However, mortgage rates recently dropped to 7.03%, hinting at a market turnaround. "Assuming rates continue to moderate, we have found the bottom," said John Hunt, Principal and Chief Analyst at MarketNsight. "As rates moderate or fall, discretionary buyers will start to return to the market."
With only 2.5 months of housing supply, the market still falls short by 45,000 units annually to reach a healthy six months of supply. Currently, inventory is 40% below pre-pandemic levels, contributing to a highly competitive market and escalating home prices. Notably, home prices have risen by 4% year-to-date over 2022, even though December 2023 prices in Atlanta showed a staggering 20% increase over a terrible December 2022. Hunt comments, "We are back to a long-term average of 5%."
In a market that desperately needs entry-level homes, Atlanta homebuyers increasingly find the door to homeownership closed. At present, inventory under $350,000 is basically extinct. "We need starter home inventory; we are witnessing an all-out war on housing affordability in our country," said Hunt. Restrictive and exclusionary zoning is the biggest challenge to this.
"Housing affordability is the defining issue of our time," said Hunt. "We have plenty of office space, warehouses and retail. Housing is the one thing we can all agree on that has a massive undersupply."
The affordability crisis is extensive; today, you can't buy a home in a top high school district for under $350,000. Two years ago, 10 top HS districts had homes for sale for less than $350,000. Hunt states, "We will not get back into this price point without a radical change in product, and unfortunately, we cannot build that varied product in many places."
To build homes in the 300,000s, builders must be able to build homes below 1,500 square feet. Zoning is going to have to change at the city and county levels. "We must allow for zoning produce in this size range," says Hunt.
MarketNsight urges municipalities to adapt zoning regulations to accommodate smaller, more affordable housing options. Local officials already approved tens of thousands of dwellings as small as 400 square feet – Class A Apartments. "After all, apartments are just tiny homes stacked on top of each other that you rent," comments Hunt. "Let's unstack them and allow people to buy them."
Hunt emphasizes that current demographic trends reveal a preference for smaller homes among the largest consumer segments: Millennials and Boomers. This marks a significant shift from two to three decades ago when Gen X and Boomers, the predominant homebuying groups, required larger homes to accommodate families with children. Today's leading consumer groups, predominantly child-free, are opting for more compact living spaces.
The focus is shifting toward communities that provide housing and amenities for those who value convenience and leisure. Boomers and Millennials, who often have more disposable income and a penchant for entertainment, seek communities where their lifestyle choices are supported.
Hunt highlighted the growing number of zoning reform laws passed around the country in 2023 – from Montana to Florida. "The YIMBY streak has started in some parts of the country already. Zoning reform has started," states Hunt.
How are permits trending? There has been a huge turnaround in permits in 2023. Home builders burned through lots in the pandemic housing boom; high rates put a damper on lot inventory, so permits were down 40% in the first two months of the year. However, permits have turned around significantly, and metro Atlanta permits may be only down slightly in 2024.
Hunt comments, "We need the inventory. We need banks to start loaning money for lots again."
Forecast: Home prices will surge once the Fed cuts rates and mortgages get cheaper. There is a dearth of inventory, which is why new homes are doing so well, and prices will not collapse. Hunt comments, "It is simply the law of supply and demand. With fewer homes and high demand, the market responds with higher prices."
To learn more or to schedule a demonstration, visit www.MarketNsight.com.
About MarketNsight:
MarketNsight currently serves 40+ cities in nine states – Alabama, Florida, Georgia, Louisiana, North Carolina, South Carolina, Tennessee, Texas and Virginia. Look for the addition of more cities soon!
To schedule a demonstration of the MarketNsight Feasibility Matrix® or Mortgage Matrix®, call 770-419-9891 or email info@MarketNsight.com. For information about MarketNsight and John Hunt's upcoming speaking engagements, visit www.MarketNsight.com.
