The Real Estate Paradox
I’m often asked about the current state of the Atlanta housing market. Typically followed by “Is this a good time buy a house?” or “Is this a good time to sell my house?”. Most are surprised when I answer “Now is a great time to both buy and sell a house”. How could that be true? Conventional thinking states that the Real Estate Market is in one of three states. “Seller’s Market”, “Buyer’s Market” or “Balanced Market”. Although there are varying degrees of Seller’s and Buyer’s markets, they are typically considered mutually exclusive. For example you can’t be in a Seller’s Market and Buyer’s Market at the same time. Since today’s market in Atlanta is currently a Seller’s market but also a great time to be a Buyer, I describe it as a Paradoxical Market.
My Motivation and Mindset
I think it’s important to explain my overall mindset and motivation before explaining my perspective on the housing market. I am a licensed Real Estate Agent and REALTOR® in the Atlanta Metro area but started as real estate investor. Although I work with clients to sell and buy houses, at my core I am very analytical and have an investor’s mindset. I tend to look at things from a different perspective than most and my main motivation is to help people understand real estate and make sound, well thought out investment decisions. My main goal is not to sell as many houses as possible. My goal is to assist and inform as many people as possible to help them make sound financial decisions and build long-term wealth. People can disagree with my conclusions and opinions but my motivation cannot be questioned.
Seller’s Market
Ok, now that I got that out of the way let’s dive into today’s Seller’s market. At a high-level, a Seller’s market is one in which the Supply of houses is less than the Demand. There is obviously a spectrum so typically real estate professionals expect that in a Seller’s Market, 80% of the houses will sell within 3 months, close to listing price. Of course there are many factors impacting the speed at which a house sells so this is taking into account all houses within a given market. In a Seller’s market Demand is higher than Supply to an extent that houses are selling quickly (on a historical basis) and for close to list price. In many cases, in a very strong Seller’s Market, houses will sell for over asking price with bidding wars breaking out. This is exactly what we have been seeing in Atlanta for several years. Since a Seller’s Market is a result of the Supply/Demand ratio, clearly the amount of Supply can play a large role. Throughout history a 6 month supply of housing is considered normal. This basically means that if no more supply becomes available, it will take 6 months for all houses on the market to sell (based on the current demand). Housing supply in Atlanta has been low for several years and continues to decrease. Current Supply levels for the Atlanta Metro area is 2.6 months. That is extremely low and makes for a strong Seller’s Market.
Not Great for Buyers
As you can imagine this does not bode well for Buyers. First of all, with so little supply of houses available it’s difficult for buyers to find a house they like so they’ll most likely need to sacrifice more of their “nice to haves” than normal. Even worse, they may need to sacrifice one of their “must haves”. Second, if they do happen to find a house they like and would like to buy, they need to move extremely fast. In a strong Seller’s market there will most likely be several other buyers interested in the house. So the house might be gone before a potential buyer has a chance to submit an offer, or if they’re lucky, they’ll end up in a bidding war. In a Seller’s market if you try to get a “deal” you will most likely end up walking back home with your tail between your legs.
Buyer’s Market
Technically a Buyer’s Market is the opposite of a Seller’s Market in that Demand is significantly lower than Supply. In this type of market buyers can take their time deciding on a house, have a much larger selection and have much more negotiating power. Clearly you can’t have a Buyer’s Market and Seller’s Market, based on these definitions, at the same time but that is not what I’m claiming we have today. However are there other factors that could make it a great time to buy even though we’re in a Seller’s market? I would argue, absolutely YES!
Why Is Now Is A Good Time To Buy
Conventional thinking is that it’s not a good time to buy real estate in a Seller’s market. However, I am not a conventional thinker. Unconventional thinking has lead to success in my real estate investing career so I encourage you to do the same. That doesn’t mean for you to follow everything I say, but be open to ideas that challenge the conventional, standard advice. Forgetting for a minute what a Seller’s and Buyer’s market is, let’s discuss why now it a good time to buy a house in Atlanta.
Price Appreciation
One of the main reasons to buy real estate is to enjoy price appreciation. Over the past several years metro Atlanta has experienced very strong and steady price appreciation. Although no one can predict what will happen in the future we can use data and information to make an educated guess. Price appreciation occurs when demand is greater than supply. As I explained above, supply levels in Atlanta are extremely lower than the historical levels for a “normal” market. Unless demand falls off a cliff prices will continue to rise. At this point there is no solution to significantly increase the supply levels. In addition we continue to see a high migration rate to Atlanta for several reasons including job growth, weather and lower cost of living. I see this trend continuing and/or increasing as people move away from larger, more densely populated cities. Although prices have climbed significantly over the past several years I see the positive signs for continued long term appreciation. Is it possible there could be a short-term dip? Sure. But I don’t believe it’s worth ignoring the current fundamentals, trends and long-term growth potential to bet on a short-term dip in the market.
Low Interest Rates
It’s no secret that interest rates for mortgages are at record lows. Just when I thought they couldn’t go any lower they broke below 3% this week. Lower interest rates make a huge difference in how much you can afford to spend on a house. So although prices have been increasing, with the extremely low interest rates it allows you to purchases a house at a much lower cost. Locking in a low rate today on a house, when looking at your monthly payment or overall cost for the life of the loan (including interest) equates to purchasing the house at prices from two years ago. Low interest rates also create more demand which will continue result in more price appreciation.
Future Potential
An important factor when deciding to purchase a house is future development. There are several large development projects throughout the Metro area which improve the quality of life. These large multi-year projects draw new interest and demand which then spur more development. This leads additional businesses moving into the area and further improvements to quality of life, which leads to even more demand and you guessed it. Price appreciation. The most well-known of these projects is the Atlanta Beltline. A 22 mile loop of paved trails, parks and ultimately a light-rail, surrounding Downtown, Midtown, part of Buckhead as well as many other Intown neighborhoods. Several segments have been completed (excluding the streetcar) which have led to an explosion of commercial and residential development in surrounding areas. There are several other segments which have not started work so there will be several more years of economic development. The Beltline is just one example. There are many other large projects around the city which will lead to new economic activity.
Conclusion
The main goal of this piece was not to push you to rush out to buy or sell a house. Nor was it to provide a full analysis of the Atlanta real estate market. My main goal was to encourage you to look past the catchy, click bait headlines or quick takes from real estate experts and start looking at the market from a different perspective. People are quick to put labels on things and tend to make definitive, all encompassing claims. The real estate market is complicated and changes in real-time so we need to treat is as such in order to navigate it properly. I labeled this the “Paradoxical Market” since it doesn’t fit into any of the conventional pigeon holes that many want to put it in. If I could eliminate the use of “Seller’s” and “Buyer’s” market I would, since both are an oversimplification of any given market and do nothing to help an individual decide to buy or sell their house. I can’t eliminate either of these from standard industry terminology. However, I can add a term to describe a market that doesn’t fit into either bucket and encourages more thought provoking conversations. The “Paradoxical Market”.