Market Update: Prices on the Rise — What’s Ahead for the Housing Market?

The month of February proved to be one for the record books. As inventory continues to deplete, the demand for homes continues to rise along with the average sales price. While the West Coast remains the epicenter of the Film and Tech industry, Georgia has been quickly gaining steam in these industries. Since the job market has strengthened, we have seen wages increase 4.5%  in response to rising inflation and demand for employees. Atlanta has been luring people to relocate for high paying jobs in what is still a relatively affordable city- compared to San Francisco, Los Angeles, and Seattle. However, just because salaries have gone up doesn’t mean their money is going quite as far due to inflation.

The expectation moving into 2022 was that rates would move higher steadily, as the Federal Reserve eases its purchases and holdings of mortgage-backed bonds. The Federal Reserve has not made any changes to its plan for that so far, so it is possible that the drop in mortgage rates will be brief. Lower mortgage rates equate more upward pressure on home prices, because more people can compete on these lower prices.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 4.15% from 4.06%. Consumer’s money did not go quite as far while interest rates were at 4.3% because the mortgage demand stalled last week, as interest rates hit a multiyear high, but that will likely change quickly. Rates are now falling fast due to the Russian invasion of Ukraine.

Economists at Goldman Sachs think Consumer Price Index inflation could end 2022 at 4.6 percent, more than twice the level it hovered around before the pandemic. That would mark a slowdown — the measure now stands at 7.5% — but it would be much higher than what the Federal Reserve normally aims for. By the end of the year, consumers should feel that their money goes further. The Fed is expected to raise interest rates from near-zero at its meeting this month. Analysts expect the central bank to make a series of increases throughout the year, of up to .25%, or even .50% to try to put a lid on inflation.

So, what does this mean for the increasing demand of home buying and the relocation market? Due to rising inflation, we have seen the price of new home construction steadily increase due to the cost of materials rising. The cost of materials is influenced by several things. Transportation and logistics play a large role in this current issue. Current events occurring in in Ukraine will play a role in increasing transportation costs. The increasing cost of raw materials such as copper, lumber, and installation is a result of increasing transportation cost and logistics. Shippers have tried several ways to keep the transportation inflation to a minimum, such as consolidating shipping loads to minimize truck trips and looking into various methods of storage rather than paying rising warehousing rents. Unfortunately, companies have little choice other than absorbing the cost or passing it along to their customers.

For more in-depth information on this time of growth and change as it relates to the market visit https://evatlanta.com/market-research/.