The “Empire State of the South” is Still Building Strong.
Last October, Think Realty Magazine featured Atlanta, Georgia, in a market analysis. At that time, we observed that the southern city represented an opportunity not just to traditional real estate investors interested in building real estate portfolios but also to private lenders. Individuals and companies facilitating short-term, hard-money loans were already flocking to the area in Fall 2016 thanks to the city’s “dynamic community of real estate investors, a proliferation of great collateral (read: deals) with attractive profit margins, and the burgeoning demand for housing in the metro area,” we said.
One year later, Atlanta home prices are higher than ever, but even one of the most affordable major metro areas in the country is starting to suffer from the widely pervasive affordable housing crisis that is spreading eastward from the west coast. Atlanta’s ability to provide affordable housing to a growing population will play a key role in the city’s housing market growth in 2018.
Any type of housing crisis is enough to give a savvy investor pause. However, with rapidly expanding industries like film and luxury automotive taking root in the area along with existing behemoths of employment like Delta Airlines remaining firmly entrenched, Atlanta still has a great deal to offer investors across the spectrum.
Rising Projects but Limited Inventory
According to the Atlanta Realtors Association (ARA) and Re/Max Georgia, Atlanta area housing prices are still heading upward. However, available inventory is heading downward, with only about 2 ½ months’ worth of homes for sale in June 2017. Conventional wisdom says five to six months’ of inventory is a healthy, balanced market.
Re/Max vice president John Rainey observed that the low inventory numbers will “continue to strain the greater Atlanta real estate market” if something does not change. He warned that the supply-and-demand “mismatch” will affect surrounding areas like Fulton and Dekalb counties, where median sales prices have skyrocketed in recent years. Fulton home prices were $400,000 in June, while Clayton County, a longstanding leader on ATTOM Data’s “Top Rental Returns” lists, still retains the least expensive homes in the area with median prices of $130,000. Investors should note that Clayton price tag is more than double median price in the area just three years ago.
As often happens in markets that lack affordable housing accessible to first-time buyers, the Atlanta market is in danger of stalling because homeowners with the means to “move up” from their starter homes find themselves unwilling to sell for what the area’s first-time buyers can afford. Instead, they remain in place, thereby creating a blockage in the system starting at the very bottom. Unless a new, more accessible inventory or first-time buyers become available, the market could continue to strangle.
Checkup: What We Said in 2016
In the original article, we noted that Atlanta investors were well positioned to profit off the city’s growing film industry, dominated by Tyler Perry Studios, which has led to the city’s recent nickname, “The Hollywood of the South.” We also observed the presence of national corporations with U.S. and world headquarters located in the area and a relatively low cost of living creates a “solid, steady, and growing population of well-heeled, steadily-employed home buyers and renters” in the metro and surrounding areas. Porsche, Delta, and National Cash Register (NCR), to name a few, still maintain major headquarters and facilities in Atlanta.
As far as job opportunities and population growth go, Atlanta is still going strong. Hartsfield-Jackson Airport remains the highest-trafficked airport in the world, and the luxury car industry has taken note of Porsche’s headquarters in the area with other industry players, such as BMW, expanding their operations into the metro area as well. Both the population and the jobs market are booming and show no signs of slowing.
So will Atlanta’s real estate market continue to grow in both size and median value despite the area’s affordable-housing pain? It seems likely. ApartmentList data scientist Andrew Woo recently observed, “Atlanta is still more affordable than most other large cities across the country,” noting that Atlanta median rents are about a third of San Francisco’s.
However, one of the reasons Atlanta attracts employers is that the local cost of living is relatively low. Wages in the southern city may be comparably lower to pricier metros even though those wages command the same level of buying power in the Atlanta area that much higher pay would command in more expensive areas. As a result, real estate investors may find comparisons like Woo’s relevant when deciding where to leverage their own investment capital, but the local population may still be facing the same affordability issues found in more expensive areas.
Has the Window Closed on Investing in Atlanta, Georgia?
Atlanta may be as close as it gets to an “eternal city” for real estate investing as thanks to a relatively low cost of living, a longstanding statewide tradition of business-friendly incentives and legislation, and the presence of Hartsfield-Jackson airport on the south side. The city known for its sprawling, sometimes-haphazard growth patterns and the ability to literally come back from the ashes (not only was it razed during the Civil War but a vital overpass in its main arterial interstate, I-85, recently burned all the way through and was rebuilt in a matter of months) is unlikely to become an unfriendly location for real estate investors any time soon.
However, the affordability issue cannot be ignored, particularly if you are a wholesaler or flipper and rely on your ability to work in the margins of the deal in order to generate your returns. Watch the local market carefully. Identify neighborhoods where homes are selling at or above listing price. Look for areas with older homes that might be updated to create attractive, modern, affordable alternatives for new homeowners and Atlanta’s healthy population of young professionals. Keep an eye on streets and even counties where other investors are working successfully but have not yet created artificial investing bubbles. Identify places you can work in the real-world market rather than where you will find yourself fighting with other investors for properties and driving prices beyond what local buyers can afford.
Last year, we wrote, “Atlanta is among the best-positioned in the country for real estate in the next five years, and wise investors are moving rapidly to take advantage of it.” Those wise investors make logical, considered decisions about investing rather than getting swept away or scared off by local hype and headlines.