Is affordable housing dead?

We’ve all heard the stories of a homeowner putting up a "for sale" sign on Friday afternoon, and getting 10 to 20 offers by Sunday night.  

To make matters worse, the winning offers are usually all-cash offers and require no inspection and no appraisal.

For icing on the real estate cake, average home prices in metro Atlanta jumped almost 20 percent since the beginning of the pandemic.  

Is affordable housing dead?

Affordability has to do with more than just sales price. It also should consider the overall cost of ownership expressed as home loan interest rates and changes in the income of prospective homebuyers.

Yes, prices are seemingly through the roof, but those prices are largely offset by lower long-term costs of ownership and the rising income of homebuyers.

First-time buyers are not facing an affordability problem, it’s a supply and demand problem.

1. Inventory is painfully low for a variety of reasons, primarily the pandemic and sellers reluctance to move during a stressful period of upheaval.  
2. Homebuilders by and large scaled back operations in response to CoVid-19 restrictions, and have been slow to rebound.  To make matters worse, many skilled tradesmen have found they can make more by collecting unemployment than by returning to work.  This cripples builders efforts to go back to work.
3. Finally, I believe what we are feeling emotionally when we see home prices soaring is STICKER SHOCK.  Almost no one buys a house as often as they go to the grocery story.  Because we buy a home about once a decade, it’s only natural that we would find the sticker price of today’s houses shocking, but the truth is that the REAL price of owning a home has come down since the year 2000.

First American Title economist Mark Fleming has recently completed a long-term study of housing affordability in the U.S. based on these three factors.  

His Real Home Price Index measures the price changes of single-family properties throughout the U.S. adjusted for the impact of income and interest rate changes on consumer house-buying power.

Since the January of the year 2000, the relative cost of a single-family home in the United States has DROPPED by 26.8%, influenced most heavily by major declines in interest rates coupled with major wage increases.

Remember when the pandemic began in March of 2020, and all of a sudden, there was no toilet paper available anywhere? In retrospect, we now know that there was never a decline in toilet paper manufacturing, it’s just that more people decided they need to buy more and more toilet paper.  

Likewise, lots of prospective homebuyers who have been waiting for prices to drop have decided to get off the fence and try to buy a home now, before the interest rates go up.  That’s just made demand all the worse.

Don’t look for a decline in home prices any time soon. If the economy continues to recover, and interest rates don’t skyrocket, I expect demand for homes to continue, at least for the next year or two.

I have many times told the Good Day Atlanta family that, for most Americans, owning their own home is usually one of the best investments they will ever make.  That’s my opinion, and I'm sticking with it.

Atlanta native John Adams has been a real estate broker and investor in residential real estate for the past four decades, and has seen the market go up and the market come down.  He hosts "The Real Estate Coffee Break" every Saturday at 11 a.m. on the world wide web at www.RealEstateCoffeeBreak.com, where you will find free special reports on BUYING A HOME and SELLING A HOME. John believes that, for most Americans, the best investment they will ever make is their own home.  

John Adams will be here for the next hour to answer all your real estate questions on our Fox5 Atlanta Facebook Page. He is happy to field all real estate questions, not just those related to today’s topic.

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