ATLANTA - The COVID-19 pandemic has caused an economic downturn in many industries with a major presence in Atlanta. Conventions and large events have been canceled wholesale, crippling the airlines, emptying hotels, and forcing the closure of countless bars and restaurants - a true gut punch.
You might think that with all the uncertainty surrounding the pandemic, the looming budget deficits, the abrupt change in government, and persistently high unemployment, the housing market would be in the tank.
But the opposite is the case: home sales are booming and prices are rising.
The median home price in metro Atlanta hit its highest point ever in 2020 — just above $275,000, according to Georgia Multiple Listing Service.
And while home values have been rising, mortgage rates have been falling. The result is that home affordability may be a lot better than most people believe.
A sign "For Sale" is displayed in front of a renovated individual house. (ERIC BARADAT/AFP via Getty Images)
There are three major factors at work here:
1. Supply & Demand
Inventory of homes for sale dropped to 1.9 months in metro Atlanta recently. In contrast, a six-month supply is considered a market in equilibrium with a normal level of sales and purchase activity.
Our current shortfall of homes for sale is felt most acutely in the low-to-moderate income range - what is often called “starter homes.” As a result, when a home does come on the market, it is not unusual to see several full-price offers within the first 24 hours of hitting the market.
A substantial number of buyers are also waiving their right to a home inspection contingency in their initial offers in hopes of beating out competitors.
2. Cost of Borrowed Funds
Even as home values continue to rise, low mortgage rates give buyers more buying power.
In this way, buying a house has remained largely affordable even throughout the worst moments of the pandemic.
In other words, buyers are saying to themselves, don’t worry about the price you pay, but instead focus on the monthly payments. Can you afford to make the payments?
Furthermore, the Federal Reserve has indicated that it intends to hold interest rates artificially low for the next 12 to 18 months as the economy recovers and America goes back to work.
As part of that stimulus, the GSE lenders (Fannie Mae, Freddie Mac, and FHA) have allowed buyers to purchase with historically low cash down payments, often as low as 3 percent cash down, which also enhances the possibility of ownership.
3. Pandemic Pain Has Been Felt Unevenly
In a strange twist, home buying has become easier for some.
In one part of the economy, people can work from home, savings are going up, and consumer debts are declining. Many of these folks are seeing higher credit scores than they’ve had in the past.
According to loan application processor Ellie Mae, in August the typical mortgage borrower had a 752 FICO score. That’s up from 728 in April 2019.
Higher credit makes it easier to qualify for a mortgage and a low rate.
In addition, it’s now considered almost normal to look at homes online, take video tours, and close a mortgage remotely from the comfort of your home. This has made the process more convenient for those who are still in a position to buy.
The Atlanta real estate market has experienced a relatively painless real estate recovery during the COVID-19 pandemic. Interest rate stimulus has played a large part in that recovery and has allowed the housing industry to contribute strongly to the rallying economy.
As long as the Federal Reserve pumps low-cost mortgage money into the market, we can expect the real estate market to continue performing well.
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