Tom Townsend:
Wondering what 2024 has in store for real estate and the economy? Hang tight. We’re going to review 2023 and find out exactly what happened in 2023 and what it’s telling us about 2024. So, hang tight. Hey, everybody. Tom Townsend with Keller Williams and Townsend Realty Group. Hey, one of the great things about being an agent with Keller Williams is we’ve got so much data and so much input that our brokerage puts together for us to be able to take, analyze, and then bring that back to you and share with our audience and our clients. So, today’s going to be a lengthy video that we’re doing.
We are going to go back and look at 2023 and a couple of years before that to dive in and tell what the story is that the information that we have about the real estate market is telling us about the market and helps us to predict what’s going to happen in 2024 and beyond. So, to do that, we’re going to dive into a number of slides. I’m going to show you some slides and go through those with you and show them one by one. So, that’s what the goal for this video. It’s a market update of what happened in 2023 and let’s see what’s going to happen, see if we can make some predictions. So, jumping into this, here are some key indicators. We’re talking about real estate right now and these are national numbers.
Now, I’m going to talk a little bit about what’s happening here locally in the Atlanta market as we dive into this, but just keep in mind that these are national numbers. There is no national real estate market. Real estate is very local. However, that being said, the national numbers are beneficial for us to take a look at. Most of this information is pulled from the National Association of Realtors, which does a fantastic job compiling data for us, and then of course some other resources are used. So, this is not Tom Townsend, this is not Keller Williams necessarily data. This is all national stuff that comes out of the National Association of Realtors. So, here are the drivers for the US real estate.
We’re going to take a look at the seven key drivers that indicate what’s going on in real estate itself. So, one of the first things that we take a look at, let me push up here, is home sales. Now, interesting. When we take a look at what’s going on with home sales, these are annual home sales. I can’t get my mug out of here. There we go. Let me just adjust here. Hang with me, folks. There you go. These are the numbers of actual sales that occurred. So, when this says 4.3, that’s 4.3 million sales that are projected for 2024. So, this is just interesting. It tells you just how much volume, and how many transactions are occurring out there. This was the run-up that we had up until the pandemic.
You can see that it was increasing, and then of course, there was this big drop-off in 2020 when the pandemic hit. I’m sorry. I was going to say wait a minute, that’s not right. It was a big run-up. In 2020, it was still pretty good, but the year that we came back, 2021 was almost a record year for us. So, that was a big push. That was the big influx. If you were out there as a buyer back in 2020 and 2021, you felt that. I mean it was very, very competitive. Then we had a drop-off in 2022 and then even a further drop-off last year in 2023. So, this volume right here is pretty dang low. That’s a low volume, especially because our population is growing. We have more buyers out there. The projected for this year, there’s been critics of this.
They’re saying that it’s not even close to 4.3. They’re hoping that it’s going to be maybe the same as last year, 4.1. Some people are even predicting 4.0, so not a very robust market moving into 2024, just not a lot of transactions occurring. So, this is interesting to take a look at and then we break it down into monthly. This was the monthly occurrence last year. This is 2022 and 2023. So, you can compare what’s going on. I’m really surprised we had that many sales in January 2022 and February and March. Wow, that’s a lot. Oh, it is adjusted seasonally. That’s why. Okay, so this is adjusted seasonally. So, it’s going to take this big hump out that we’re seeing during the summer months. Now, this is national.
We don’t have that big of a hump here locally in the Atlanta market like they do nationally. Just think about the northern states. There’s just not a lot of stuff going on during the winter months. Their market’s all summer. We have a little more flatlined as far as seasonality, but this shows you month-to-month what’s going on. 2023 was pretty flat across the board. We didn’t have a big bump whatsoever, but it was consistent. There wasn’t a particular month that was just a drop-off or a pickup. So, just interesting. You can see the slowdown in 2022 was occurring throughout the year. That’s when the rates started going up at the beginning of 2022. So, the average sales were decreasing pretty steadily, but this shows us that it’s plateaued off since the end of 2022.
So, it’s been pretty steady across the board. So, that’s what I read into that. So, we’re not decreasing, like we were back in 2022. All right. Let’s take a look at home prices. This is a great slide because I use this in my listing presentations and with my buyers as well. Listen, there’s so much misinformation out there as far as things being way overpriced and this is crazy and they’ve got to come down. But historically, we can take a look at what’s going on with home prices. The average home price historically is 4%. All right. So, this trend line is 4%, and if we just continue to follow that up all through here, you can see what happened back in the Great Recession back in 2006, 2007, and 2008. We ended up about 24% above that trend line by 2006.
Now we had really shaky financing going on back then. They were loose with their lending requirements and they were given money out like candy. If anybody was around back then, you remember that which ended up causing this big drop-off. That’s what started the recession itself was all the defaulted loans that we had out there, but it was already way above that trend line. So, there was a big fall-off and there are some other reasons that we may get into a little bit later of why it fell so hard and so fast basically because we didn’t have anybody coming in quick enough to be able to help stop this drop. The federal government didn’t come to the rescue fast enough, but eventually, they did and it started to plateau.
But here’s where people are feeling pain. We were below this trend line for almost 15 years. Then in 2021, look at this jump. We went from here to here in one year. This was a huge appreciation year that actually went below the line to way above the line and then it continued to go above the line for the last three or four years. So, this is why people have exaggerated the fact that they think the market is way overpriced. I have countless conversations with people saying, “Man, this market is way overpriced.” We’re still only 9.3% above the trend line, far below the 24% that we were back when it crashed. All right. So, we do have some adjustments going on. So, the government reacted much quicker this time, because they didn’t want this to happen again.
They went in and they reduced rates, which slowed this huge increase in this influx up. It slowed it down and we’re going to see in future slides here that it has plateaued off. So, now we have two choices. Either it’s going to have to come back down or we have to wait it out for this trend line to catch up to where we’re at right now or a combination of the two, which is what most experts are saying that it’s probably going to be a combination of the two. Maybe keep this. Hopefully, this will steady and plateau off and we won’t see this crazy appreciation that we have and stay below 4% a year for a couple of years until this line can catch up with us, but this is a really good slide to show that we’re not crazy overpriced.
Now, this is national, all right? Again, this is national. It’s not regional, but I will tell you that the Atlanta market, when we look at it, is very, very close to this. So, not that far off. So, this is a good slide. This is interesting, looking at when appreciation has occurred, what years, and how much it occurred. So, you can see back from 1990 to 2000, pretty steady, 3.9. That’s right on that trend line we were just talking about. This is when it started getting crazy, is back in 2001. I will tell you just based on history, this is when they started loosening up lending guidelines and everybody was getting a loan and they were handing it off to people that didn’t even have jobs and the whole bit. That’s what that run-up was.
All right, and then what hit the fan and people started to default, and then it just fell apart on us. So, you can see that we lost that appreciation in those years until about 2011 and then it started kicking back in again as we started to become healthier. Now, we were so far behind that trend line. We had gaps to make up. So, this was good that we started to see some of that appreciation to make up the difference. You got to remember naturally, if you’re a statistician, if you know anything about stats, that trend line is like a magnet that’s going to naturally pull things to it one way or the other. That’s what creates the trend line. Then here’s what happened during the pandemic, right?
Everybody got a check, got a government check, and everybody had money to spend. That’s what fueled not only the real estate market but everything else too. That’s where you saw these huge jumps in appreciation during those years, 2020, 2021, 2022, and this just is not sustainable. 2022 is when the rates started going up and the feds jumped in and they said, “We got to slow this thing down.” They did. They pulled it down. They don’t want to get into an issue where we’re starting to lose appreciation or devalue it, but getting this down to as close to 1 or 2% as they possibly can be optimal in regards to what the federal government would like to see. So far, in 2023 and 2024, that’s what we’re seeing now.
Now, I had a conversation with quite a few folks and I don’t know where they’re getting this info. Again, this is National. Georgia is following along this trend line pretty much to a tee, but I’ve had conversations with folks and they’ve mentioned to me that they’ve been hearing that we’re losing value in the local area. We don’t see that and I don’t know where they’re coming up with their data. I ask them, where’d you hear that from? Where’d you get that from? They can’t tell you. So, I don’t know where people are pulling that from or where those stories are coming from. But just understand that overall in the Atlanta area and even nationally, we’re still seeing some appreciation in housing, just not at the clip that we were, which is always a good thing.
We just can’t sustain this for much longer. So, this is all good, this is healthy. So, we’re happy with that. Home price appreciation, all right, so here it is. Kind of the same thing on a graph. What we pulled out of this was it’s very interesting. This line right here, that’s 0% appreciation and we do have some periods over the decades and time that it hits zero. So, if you look at every time this line hits zero and then look at the reason why it hit zero, it’s very interesting to note that it is either a government influence or a banking issue. Just really interesting. If you let just the market react and do its own thing without the influence of government or bank intervention, it’ll probably just continue to grow. So, here’s an indicator. Let’s talk about this. This is the Great Recession.
Remember when I said they were a little bit too slow to react, the government was to jump in? This is what I mean is that they waited too long until this thing crashed, and then by the time they did do something, it was too late and it crashed even further. No one wants to see this again. The feds don’t want to see it. The banks don’t want to see it. No one wants to see this. We made changes over the years since then to circumvent that. That’s why you saw the federal government react. When they saw this increase right here, that’s why they reacted so quickly by increasing the interest rates, the fed rate to slow this thing down. You can see that it just touched that bottom and then started to come back up again. So, this was good. This is good.
We didn’t see this, which is what we don’t want to see, but it is interesting to note that it’s either a banking or government influence. So, watch those two things, right? If you’re interested in this stuff and you want to watch, see how healthy the banks are and watch government influence on your interest rates and some of the policies that they’re passing as it relates to the economy and real estate. All right. This is the overall volume. Is this a dollar amount? Yeah, this is dollar volume. So, this would be the value of the property being sold. So, you can see once again that this trend line continues as appreciation increases. The value of a property is going to increase. So, naturally, that is going to jump up.
You can see in 2021 this was caused due to just the volume that we had. People were buying and selling properties in 2021 that were coming out of the pandemic. You had government checks and people were pent up for a year and they were ready to do something. You had companies that weren’t requiring you to be close to the office anymore. So, people were moving out. There was a movement going on in 2021, and then that started pulling back. Then we settled in at 2.09 in 2023 and then we’re predicting… Once again, people are saying they don’t think it’s going to be that high this year, but we will end up seeing. Then this is the agent count. People are going to follow the money. People saw that agents were making money.
They saw the opportunity there. So, people ran out and got their licenses. So, this is just interesting. During the Great Recession when things slowed down, people left. So, agents left the business. So, this is an interesting scale. This one is adjusted for inflation. So, when you pull out the inflation, it gives you a better baseline from a statistical standpoint. So, here it is again. You can just see the last couple of years. Look at that. I mean this is just a huge increase. Again, everybody was pent up in 2020, and 2021 when things started loosening up again. People had money in their pockets and they went out and bought and sold. Same thing with the agent count. It’s the same. That’s not going to change.
So, what do we see? We see a decrease in 2023 that’s driven by the interest rates and the lack of volume overall. The prediction is that it’s probably going to stay about the same as it was in 2023 for this next year. This is a little optimistic. people are saying, “Yeah, it’s not going to be that great,” but it’s not going to be drastically different than that. All right. Inventory, if you watch this stuff and study it, everybody’s been talking about the lack of inventory in the market. This shows that. If you can remember high school economics class and the law of supply and demand, it is what it is. So, the lack of supply that’s available typically puts upward pressure on pricing, because things become more valuable when there’s scarcity.
So, that’s where you’ve seen this huge increase in appreciation over the last three or four years because that inventory level has been so low. Even with the increase in rates which pushes down pressure on prices, it’s a battle between rates and inventory right now. Who’s going to win out between those two factors? Right now, it’s balanced its way out as far as the value of your property, the value of real estate. So, we already went through that, that there’s just been a modest increase in value. So, the lack of inventory or the short supply thereof is battling a little bit more, battling out. It’s winning a little bit, but this is interesting. You can see when inventory goes down, appreciation is going to increase just because of the law of supply and demand.
Mortgage rates, this is another slide that we use quite a bit. We talked to folks that although rates are what they conceive as high, historically, they’re not all that bad. Here’s where we have a problem is really since 2000, right? We’ve been on a 24-year run of super-low rates. So, we’re used to these low rates. Most of us who currently have homes and have a mortgage are locked in at a really low rate, 3, 3.5%. To be able to trade that out, to sell that out, and then buy a new home at 7.2%, which I think is where we’re at right now, is very painful. So, because we have such cheap money that we’re borrowing right now, that jumping into a higher rate is painful. So, that’s where people are locked into their houses. They’re like, “Nope, I’m stuck. I’m staying here.”
So that’s where the pain is. But historically, when you look at rates, it’s pretty much on par. It’s pretty average for where we should be historically. Just another note, back in the ’80s when it was 16.6, I’m sure anybody who has people living in that era, they’re always telling you how awful it was back when they were buying a house. So, anyway, just another little tidbit. So, anyways, there’s your mortgage rates and then of course we broke it down per month for almost the last nine years. So, this is where we’re at. This is the pain. Look at this. We’re just cheap money. Look how cheap this was for so long. Look at this. All right. Fun story, in 2020 when the pandemic hit, everybody panicked. We’ve never been through it before. So, there was fear there.
Man, I had so many conversations. People were like, “No one is ever going to buy or sell a house again. There’s no way it’s going to happen.” The rates were at 2.68%. Now, hindsight’s always 2020. Wouldn’t you have liked to have bought five or six houses, rented them out at a 2.68% rate, and benefited from all the appreciation that happened over the last three or four years? I’ve said this, man, the folks that bought houses back in 2020, high five. You are doing very well. Good for you. Kudos to you for actually seeing that. But man, I had so many conversations with folks that we’re not going to buy back in 2020 and 2021 because there was fear. There was unknown there. So, I got that. I did.
Well, I shouldn’t say that. I was going to say I was right there with them, so I got it, but man, I tell you, look at that rate. Hard to give up that 2.68 for a 7.2 right now. It’s just not going to happen. All right, treasury spreads. I have a hard time explaining this, but I’ll do the very, very best I can. So, when the Fed raises rates, it is not a direct reflection of the 30-year fixed. It’s indirect. So, this rate, I’m going to try and put it in layman’s terms. This is the rate at which banks borrow money back and forth from each other and the Fed. So, that’s what they get the money for. Then they put a margin or a yield on top of that and a 10-year treasury bond deal. It gets a little complex and that is called the yield spread.
That’s the profit margin that they are looking at that they put on top of that. That is based on risk and risk assessment that they feel in the particular market at any given time. It is market-driven. So, it’s not like you’ve got some banker back there. Well, I think it’s going to be X amount. It’s market-driven. Once again, I’m trying to simplify this, because it gets a little complicated and it gets over my head. But here’s the news that I want to tell you. There’s a large spread right now of 2.85% between what the banks can borrow and what the market is lending that money out forth. So, there’s a fairly large gap here as you can see. So, some folks are saying, “Listen, we’ve got some room to get this thing down.”
So it can come down without the feds having to lower their rates or adjust their rates at all. If they just stay stagnant, there’s still a large yield in there right now. We’re hoping that over the next six, or nine months, people are saying there is some room to be able to get these rates down and have the market relax and not be so fearful and relax a little bit and not have such a high yield rate. So, I’ve heard anywhere from 1% to maybe a little bit more that could drop down. So, that computes to a current rate of 7.2, which is I think where we’re at right now when I’m recording this. If there’s a yield flexibility in there of a drop of another percent, that means that rates could come down to 6.2. Okay? So that’s what that compute comes out to.
So, anyway, that’s what the yield spread is. We take a look at this. This will tell you how much risk the market sees in the market right now. Right now, it’s saying that there’s risk out there and so they bake in risk inside the yield. So, hopefully, that was enough of an explanation for that. You can correct me if I was wrong on that. If there are some financial guys out there that I got it wrong, please let me know, but that’s how I understand it. All right. Affordability, here’s another slide that we work with buyers on right now. Listen, millennials, you guys are always getting beat up and I apologize. I’ve got millennial kids. I think it’s just natural for one generation to beat up on another.
Listen when you get a little bit older, you’re going to beat up on the generation behind you. So, it’s just natural. We all do it. Believe me. The generation ahead of me, they thought we were a bunch of yahoos and we didn’t know what we were doing. So, anyway. Millennials, I hear complaints that it’s just unaffordable. You can’t afford a house. No one’s ever going to be able to afford a house. When we look at this, yeah, it’s higher than what we typically would like to see, but it’s not crazy outrageous. So, the affordability rate is still halfway decent, maybe a little bit high. I always like to see it about 25% right in that area. That seems to be a comfortable area, about 25% affordability when we look at it.
That’ll tell you the cost of things associated with how much money you’re making. That’s the two factors that get plugged into this. So, how much money are you making? What’s your income, and then how expensive is housing right now? Those are the two factors that make up this affordability number. Right now, it’s at 32%. The last time we were at 32% was 2006 right before the crash, but yeah, you go back to 1981, which is your crazy family that always complained about your 16.6% interest rate. Well, that’s why that was at 49. So, that was a crazy time in real estate. But right now, yeah, do we need to come back down? It will. It’ll come back down because that trend line is going to naturally pull it down. But right now, yeah, it’s a little tough. It’s a little tough right now.
So, again, going back to 2020, hindsight is 2020, no pun intended, but man, the affordability back then was pretty good. So, sorry, you missed the boat if you didn’t buy back then. So, here you go. That’s affordability. We can feel that. All right. The Canadian market and we’re not going to talk about Canada unless you want to talk about Canada. Reach out to me. I’ll be more than happy to go through those. All right. Now, we’re going to shift away from just real estate and we’re going to take a look at the economy. Real estate and the US economy are tied at the hip. Real estate has a large impact on the economy as a whole. New construction goes into our GDP numbers, not resale.
So, keep that in mind. That’s always an interesting caveat to that, but these are the key indicators to see how we are doing overall in the economy and then obviously the story that these numbers are telling us and being able to make as best predictions as we can for 2024. So, GDP, gross domestic product. So, this is the overall arching indicator of how healthy the US economy is doing. It happens to be the number that everybody seems to go to. The federal government would like to maintain a 2% GDP. That is their goal. Anything below that, we have deflation, which is not good. Things are crashing. Anything above 2.0, we have inflation, which is what we’re going to go through this real quick.
You can see right here, here’s the Great Depression of what happened to it and the economy fell apart on us and then rebounded fairly quickly, but was pretty steady by plan coming out of that. So, here’s the pandemic. We lost 2.2% of GDP in 2020, but look at this rebound. This is the inflation that everybody is feeling right now. When you have a year coming back that made up not only that 2.2 but made it up plus some, this was all the government money that we all got. We had money and the government pumped the economy back up, and then in 2022, it came back down to two, which is their goal. Then in 2023, it jumped back up to 2.5. I know that you’re probably thinking 2.0 to 2.5, but that’s no big deal. That’s a big deal. That’s a lot of money. All right.
So, just that little 0.5%, has a huge impact on it. So, the federal government is going to continue to put downward pressure on the government through rates and some other policies that they can make. They’re going to have to start passing laws and stuff to do that fiscal policy apparatus that they have, levers that they have to get that back down, but they’re going to continue to push this down. This is not a number that they want to see, especially after two years of seeing that. All right. So, they got to get that thing down. So, what does this tell us? GDP is on fire. We had a huge influx of cash into the system, which drove up inflation big time. We’re going to continue to see downward pressure for the near future until we can get this GDP number back down.
We look at it quarterly. I just think this is interesting. In 2020, here’s the first hiccup that we had in that first quarter, that second quarter. Look at that. Boom, everybody was home. This is when the world shut down right there. Then when we started coming back, boom, this is when everybody got their checks and we had all the money. People were back out and they were starting to get back to normal and then it just kept on going up. Look at that 4.2, 5. I mean this rally right here, this is your inflation. Bam, right there. That’s where all that inflation. Then it pulled back. This is when they increased the rates right there, and pulled it back. So, they put the brakes on and then it still bounced back a little bit and then they’ve been struggling with it ever since.
They’re still struggling trying to keep that thing down. So, this is an interesting slide. I like this. Okay, growth versus home sales. All right. Home sales is a leading indicator for GDP. So, many economists will look at what’s happening in the housing home sales to predict what’s going to happen in GDP, because home sales have a large impact on GDP. I looked at this and it doesn’t look like it follows it to a tee, but you can see… All right, this is existing home sales. All right? So you can see when home sales decrease, shortly thereafter, now it’s usually like a year, it’s not a couple days. It’s not immediate, but a year later, you’ll see that a decrease in sales shows a decrease in GDP. So, here’s a decrease in sales for this period, 1997 through 2000. You can see the GDP slowly came down.
You can see it bounced back and then GDP slowly came back up. Now, GDP, because home sales are one of many factors in GDP, there’s not going to be the same volatility here. It’s going to be much more subtle, but you can still see the trends. So, here’s where it came down, this is the Great Recession and then you can see GDP followed that. Now, the federal government does not want this thing to get below zero because that is all kinds of other issues. So, this is when I talk about the slower response. This is what happened and GDP fell below zero. We do not want to see that again. Then it came back up and you can see GDP slowly came back up later. Didn’t follow here, this was pretty stagnant, but you can see this fell here.
This is late 2018, 2019. It fell and you can see GDP fell. Now this is 2020, so that’s where it went below zero. But you can see that it went back up right here and then it climbed back up. Okay, so here’s where we’re at now and this is where it’s got people stumped. So, we see this big, huge drop since 2020, 2021, 2022, this big, huge drop. So, we can anticipate that probably over the next year or so, this GDP number will come back down if it’s still going to follow this trend line. The question is how far is it going to drop? We do not want to get it below zero. So, it’s a balancing act. The feds are going to have to really take a look at this and do the right thing for this right here. I know this doesn’t look like that was very significant, but coming below zero is pretty huge.
This was the shutdown. So, that whole shutdown, shutting the economy down for a whole year, just that little, teeny blip right there. So, I know it looks minor on this graph, but that’s huge. So, we don’t want to see that again over here. So, anyway, this is going to be interesting to watch and see and to make sure it’s a balancing act to make sure that we continue to keep things pumped up enough that we don’t below that zero. So, just interesting, very interesting. Unemployment, I don’t know if there’s a lot to talk about here. Listen, our unemployment nationally and here locally in the Atlanta area is good. I think it probably is a little bit lower than that. I think we’re beating the unemployment rate on a national basis.
I can’t remember. But the good news is listen, there are jobs. There are jobs out there and we don’t predict that that’s going to change a whole heck of a lot. So, that’s good news. So, employment is a big indicator of the US economy and we seem to be doing okay. Is this the same thing, just a line? Yeah, it’s just the same thing, same stat, just a line. So, unemployment is good. Here it is every month. You can see it’s steady Eddie. Obviously, in 2021, everybody was coming back to work and we slowly filled up the jobs again, and then by the middle of 2022, boom, we were plateaued off and it’s been steady Eddie ever since. All right, personal savings rate. All right. This is concerning. This has got people concerned.
Millennials, I’m going to pick on you again. Interesting that this was the saver generation, the ’50s, ’60s, ’70s. This is the generation that just saved their money. They were big savers. Then something happened in 1990 and beyond that the saving rates… Well, first of all, life got expensive. This is where you started seeing the need for double-income homes. No longer could you sustain what you felt comfortable with a single home, a single paycheck coming into the house. Plus they were saving. Not only did they only have one income coming in, they were saving so much money. So, there was a drastic shift that occurred. So, without getting too much in detail, here we are today. Back in 2005, this was right before the Great Recession. No one was saving it.
I mean talk about living paycheck to paycheck. This was it, right back in those days. It came back up after the Great Recession, but it never has rebounded. Now, most financial gurus will tell you at a minimum, you need to be saving 10% of your gross income. So, that’s not net. That’s your gross. So, if you’re making $50,000 a year, you need to be saving $5,000 a year minimum. Okay? I’m part of the KW Wealth community and we talk about building wealth and all this other good stuff. Our goal is 20% of our gross receipts. So, that’s what our aspirations are from a savings standpoint. Now let me define savings for you too. This is not a checking account or your savings account. These are investments.
So, this is stocks, bonds, partnerships, joint ventures, whatever you want to do, maybe savings. Some people have whole life insurance, dividends, paying out whole life insurance policies that they use, whatever it happens to be, but you’re pumping money into some kind of savings or an asset, maybe another business, whatever you happen to do. So, this isn’t like a savings account. However, this is concerning because what we’re finding is the millennial generation is saving very, very little of their money, very little. That is going to come back to haunt you. I know when I was younger, I didn’t think about savings and retirement and my health. I mean none of those things were a concern until I was about 55.
Then all of a sudden, things started getting serious and I’m like, “Holy smokes, things change.” Believe me, and I’m going to show you on a couple of other slides, I think they’re in here just why that is. Things are getting very expensive. If you don’t have enough savings and assets that are generating income for you when you get into your later ages, I don’t know, it’s going to be pretty tough. I know my kids and the millennials that I do know, it’s all about experiences. They love spending money on experiences now. That seems to be a trend. That’s great if you can afford it, but man, you got to be able to be disciplined in that area. You can’t just live paycheck to paycheck and travel all over the place and do whatever the heck you want.
So, anyway, I’ll take my dad’s hat off, but that’s my two cents on the savings rate. But this is concerning that we’re not saving money. This 2021 number, I think that’s a reflection of everybody getting government checks after the pandemic and then it, boom, dropped right back down. Anyways, okay, inflation. All right. Our lovely government always has to recalculate or come up with a different formula for inflation primarily, so the numbers look better for them. So, we have a couple of different inflation numbers that we track. So, once again, we’re trying to get to that goal of 2%. That’s what the fed is after.
We talked about this a little bit before that right now, it’s a little bit high, but because of the policies and such that we have in place, they are predicting that they’re going to get this thing down to 2% in the next year or so, but it’s going to take a little bit of time. We’re not going to get there right away. So, that’s what the projection is and we feel like we’re on track for that. So, that’s all good things that are occurring there. All right. This gets back to what I was talking about earlier about saving. All right. So, this is what you guys feel, we all feel as far as inflation. There are two categories, actually three categories, four categories that we see that are heavily impacted. That is healthcare is through the roof.
Look how expensive it is for healthcare. You’ve seen a huge inflation number. Then also college, and school is through the roof. So, Gary Keller was going through this with us and he made the joke. He goes, “The last thing you want to do is go to college and get sick,” which I thought was funny, but it’s true. As you age you’ve got college. So, if you go to college and get a degree, it’s going to be expensive. But as you age and you get older and you have needs for medical services, you’ve got to be prepared for this. I don’t know how long these numbers are going to be trending up. There’s no way this is sustainable over the years, over the long haul. So, they’re going to have to start plateauing out a little bit.
But man, you got to have some money together. This is what I was saying. When I turned 55, started getting a little bit older, having to go to the doctor a little bit more often for a variety of different reasons. I was like, “Holy smokes, this is not cheap.” So that was a huge eye-opener for us. Then the other thing is I’ll just tell you a personal story. My wife and I, love to go out. One of the things that we enjoy is going out to restaurants and eating out. It’s just one of the things that we like to do. I’ve been complaining over the last few years just saying, “I can’t believe inflation is out of control.” The reason that I felt that way is because food and beverages have gone up like 90%. Because that was such a large line item in my budget, that was a huge impact.
So, it felt like everything was super expensive. But if we cut that out and I was healthy and I didn’t go to college and I didn’t have to buy a house and maybe I just bought some clothes every once in a while and loved computers and programming and TVs, I probably didn’t feel that much of an impact on inflation. I was probably like, “It’s not that bad,” because the majority of the money that I’m spending month to month on all of these things that haven’t had any inflation at all. TVs, computers, software, it’s all decreased. So, all of my habits and the money that I was spending on all these items didn’t see a whole heck of a lot of inflation. It’s all about perspective. Where do you spend your money?
If you’re in school and you’re sick and you spend more money going out to eat, you feel it. Your inflation numbers are like, “Holy smokes, this is crazy.” But if you like computers and playing games and software and TVs and a computer person, you probably didn’t feel it all that much. So, anyway, just thought this was an interesting slide. Consumer sentiment is just basically how people overall are feeling. The higher in the number, the more positive you feel about things. Back in February 2020, before the pandemic, people were feeling great. That’s why that pandemic probably hit us so hard because things were going so well. The consumer sentiment was one-on-one.
We haven’t seen that forever. So, we went from this high, high, high to holy smokes, the world’s coming to an end very, very quickly. So, it dropped down, held in there, dropped down. I don’t know what was going on in June 2022. I don’t know what happened. Maybe that’s when the rates increased. Yeah, that was about when the rates increased. All right. So, now all of a sudden, the feds are raising rates, the interest rates are going up, affordability issues, and then we’ve just been climbing out of that slowly but surely. This is the good news. I mean, January bumped up to 79, so that’s pretty good. So, people are settling in. This is a little psychology. Anything is brand spanking new, people clench up, and they get a little bit fearful.
Think about when the pandemic hit and everybody had to stay home and you had to wear a mask and your immediate reaction was I look so goofy in this thing, I feel weird, it’s uncomfortable, I’m not going to wear it, I’m not going out with this thing. Then slowly, we got used to it and it wasn’t all that abnormal. I mean we still see people with masks on around here and I don’t even give it a thought anymore. So, it just becomes natural over time. So, I think that’s what’s happening here is we’re getting used to it. It’s just going to take a little bit of time and then we’re going to roll out of this thing. We don’t need to look at Canada. All right. I’m going to skip this. This is the game behind the game for agents and brokerages.
Maybe I’ll go through this a little bit, but this isn’t necessarily anything that most people would be interested in. I just think it’s interesting because I’m in the game. This is sides per agent. So, I’ll explain this here real quick. So, a side is a transaction. So, when you sell a house, there are sides to every transaction. Just like if you’re involved with stocks, you have to have a buyer and a seller for the stock that you’re selling. House is the same way. So, there are two sides to every transaction. So, this is the average number of sides that a typical agent, an average agent would make. Now, this is an alarming number. Maybe I will talk about this. The average over time is 10, 10 sides. That’s 10 transactions a year.
That’s not a lot. It talks about how there was an influx of agents during the boom, and then after the crash, they all fell out. Then lately, once again, I mean people chase money. They see people are making money. So, in the last 10 years, there’s been a huge increase in realtors. Hey, who doesn’t know three realtors off the top of your head? You can’t tell me that you don’t know any. There are tons of us out there. There are too many of us, and this is what this is showing. So, in 2023, the number of sides that average an agent would make on average is 5.3. That’s five transactions a year. Now I will tell you this is national in the Atlanta area, I’ll let you guys know this, the average commission, now is gross. This is top-line gross let’s just say 10,000 bucks.
It’s a little bit higher in the Atlanta area, but nationally, let’s say it’s 10 grand. So, if you’re selling five sides, that’s 50,000 bucks. Now, that’s the top line. That’s your top gross and that’s not what you’re taking home. You have the cost of sales. You’ve got expenses. So, any really good agent that’s running an efficient and good brokerage or a business, at best, they’re taking maybe 40% gross margin back. That’s 20,000 bucks a year. Now, that’s what goes into their checking account after taxes to pay for stuff. That’s 20 grand. That’s not a lot of money folks. That’s below the poverty line, I think. So, here’s the message. We’ve had such an influx of agents over the years, that you need to interview them when you hire them.
Make sure that they’ve got the experience and they’ve got the volume because I’m telling you, you’re making $20,000 a year in your pocket. You’re either doing it part-time and you have something else going on and you may be making money and you’re just doing it, which is fine, but if you’re living off of that, you are desperate. So, you’ve got to understand someone’s motivation behind helping you. It’s not necessarily putting food on the table. That’s not the agent you want. You don’t want these starving agents out there that are desperate to help you through one of the most complex and expensive transactions of your life. So, anyway, this is an alarming number.
Now, I think over the next few years, you’re going to see a drop-off of agents and the cream of the crop is going to rise. Those agents that are professional, they stay up with their education, they know how to market, they know how to sell, and they’re running a business, those folks are going to survive. But if you don’t have that value proposition, if you’re just an agent that’s been out there winging it, man, those folks, it’s going to be tough for them. So, anyway, this is an interesting slide now that I look at it. This is volume. This is actual dollar amounts and volume. So, the average agent in 2023 sold almost $2.7 million worth of revenue. Now, that’s the value of the real estate itself, which is not a lot, just is not a lot of money. It isn’t.
Most productive agents are trying to hit that every month, not annually. So, I’m just saying. Interview your agents. Price drops, so you don’t have to worry about that. New listings coming on the market. This is just interesting. It just tells you that 2023 was slower than 2022. So, nothing that we haven’t already covered there. All right. This is interesting. Distressed sales are foreclosures and short sales. Now short sale is a sale in which the owner or the seller, owes more than what the house is worth and they have to call their bank and work out a short sale. In other words, pay them less than what they owe. Well, this is on the back end of the Great Recession. So, you can see that it was super high. You can see it’s been nothing.
We have just very, very few foreclosures and that is because people have equity in their houses. After all, they ran up the appreciation and they’re not underwater any longer. They’ve got equity. So, if they do get into a situation where they have to sell the house for a variety of different reasons, they’ve got equity in there. They can put it on the market and sell it and not have to foreclose on it, give it back to the bank, or they have to work out something with the banks themselves because they’ve got equity in there. So, this is all very good. I’ve had multiple conversations over the last couple of years with investors or people who are waiting for the foreclosure market to kick in. They’re like, “Oh, they’ll call us.” Hey, do you have any foreclosure properties? I’m like, “Nope, nobody does.”
So you can see that. There are no foreclosures. So, it’s just not a market that has reappeared again and we don’t want it to. So, this is underwater. These are sellers that owe more than what the house is worth. It goes back to what I was saying up here. People were underwater back in the Great Recession. We just don’t see it. It’s not here. So, if you get in trouble, people have got to sell a house for a variety of reasons. When they’re not ready, people have enough equity to be able to sell it on the market and be able to make some money on it so they’re not underwater. All right, credit conditions. How hard is it to get a loan? Back in the Great Recession, banks tightened up big time. It was almost impossible to get a loan right after the recession hit back in 2008, 2009, and 2010.
It was very difficult to get a loan. Then it loosened up a little bit. It was loosey. 2020, this was just a freak-out with the banks. They didn’t know what was going to happen when the pandemic hit. So, tightened right up and then very quickly loosened up. All right. Once they knew the world wasn’t coming to an end and we were all going to be okay, it loosened back up for a while. This is when rates tightened up a little bit and they slowly started to tighten up back in 2022. It’s increased a little bit since then. So, an interesting thing, but banks will tighten and loosen up their lending requirements based on economic conditions. What do we see in the future? Probably a continuation of tightening up. I don’t think it’s going to tighten up any longer but stagnate.
See this green area down here? We’re probably going to see that on the red side up here for a little bit. I don’t think we’re going to see a big spike or anything like that and come right back down for what that’s worth. These are new home starts. This is new construction. Just understand that we are in a very, very short supply of inventory across the board nationally. We are in short supply here in the Atlanta area. Our population is booming. We have properties that are getting old and being demolished and need to be torn down and we need to replace those. So, new construction, depletion of new construction is still very heavy. There is no quick fix to that. So, we’re going to be in a short supply of new homes for quite some time.
Hence the reason when you drive around, you see all of these new subdivisions popping up. This is a direct reflection of what the market is seeing as well. So, we see a continuation of new construction moving forward over the next few years. New home sales, what’s the difference? New home starts. So, we started. These are permits. So, a builder goes out and gets a permit and they break ground. They haven’t sold the house, but they broke ground. These are sales. So, we just look at the ratio between what has been started and what is sold. We just want to make sure that there’s not a huge gap between what is being built and what is sold. There isn’t, right? So builders are still being very successful in building their stock or their inventory of homes that they’re building.
So, no new trends there. We see that continuing. The rates have had a little bit of a hiccup for them, but they’re figuring it out. I’ll tell you, if you’re a buyer out there, because of the lack of inventory in the resale market, you need to go look at new sales and new construction. There are some really good deals and the builders are savvy enough that they’re giving you incentives back and they’re also giving you incentives to buy down the rate to move their inventory. In the resale market, the typical ma and pa person who’s selling their house isn’t savvy enough to be able to buy down rates.
If you’ve got a really good professional agent that’s representing them, they can talk to them about the ins and outs and the pros and cons of that and be able to work that out, but typically, they are not. But builders are. So, incentives on the new sales side, unless you have a savvy seller/agent who’s working with a resale. All right. Student loan debt, happens to be a lingering problem, right? Millennials, this is tough. I mean, this is an issue. We’ve got student loan debt that’s way too high and then the consumer debt on top of that has increased. I thought after 2020 when we all got our checks, this would go down. All it did was plateau. It helped us maintain that. It didn’t increase. It went down a little bit in 2022.
Maybe that was a result of the money that we all got, but man, it jumped right back up this last year. So, that’s a little concerning. This needs to come down. We’re going to continue to watch the debt, which is going to go back into right here. This is going to go back into what your household debt service ratio is. This is a combination of “How much money are you making and how much money are you spending?” It comes up with a ratio, and this is what lenders look at to see if you are approved for a loan, right? They look at your debt service ratio. This debt right here is a huge factor in this ratio. So, the more money you owe and the more debt you’re in, the higher your ratio is going to be and you’re going to get a loan or a favorable loan.
So, we look at that to see how healthy the market is. Are people making enough money? This is fine. It’s not fine. This is one thing, this is one factor, but hey, if everybody’s income has doubled since it was a year ago, then it’s not as significant as it would be, but if your income hasn’t increased and your debt load has, it’s going to have a huge impact on this ratio. So, that’s what this ratio tells us and just gives us an indication of how much of that is held in a mortgage and then what other consumer debt we have. It’s a little concerning that the mortgage rate… I guess, it’s holding steady, yet our consumer debt’s going up. So, we’re going to have to continue to watch. We don’t want to get into this whole scenario that we were in back in the Great Recession.
This is what we don’t want back there. Okay. All right. What economic risks do we have moving forward into 2024? This is good to take a look at right here locally. This is going to have a huge impact on us as well. So, we always monitor these things. These are the not-you’s and the things that can screw up the economy itself and can mess up the local real estate. So, the first one is ineffective governance. Are there slides? That means we have a government that’s not making any decisions, nothing’s getting done. It’s gridlocked. It’s an election year. So, if you watch the news, which is awful by the way, in my opinion, you’re going to get two sides of the camp, right?
I mean, they’re both saying what they want to say and they’re pushing their message out and it’s very confusing for everybody. There’s so much misinformation out there and it’s confusing. Then we have a government that’s just gridlocked. I mean, not a lot is getting done and we need to get some things done. There are things that need to get done at the government level as it relates to the economy and it relates to real estate and that’s a risk. The risk is nothing’s going to get done. Remember when I talked about the Great Recession and the government reacted too slowly to that and that was one of the reasons why it was so severe? Well, that’s a risk. Now, it’s like, listen, we may end up having to pass some stuff.
We’ll talk a little bit about that when I get in. I’m going to talk about commercial real quick, but that’s one of the issues that we have. Global conflicts, we get sucked into a war or anything. Who knows what’s going to happen? That’s a big risk. So, hopefully, we won’t have further conflicts that are going to occur, because, on many levels, that’s not a good thing. Financial system risk stemming from commercial real estate, listen, commercial real estate’s got some issues. A lot of that is stemmed from the way that we finance our commercial real estate. There’s no 30-year fixed loan in real estate. They’re typically a much shorter period, usually a five-year loan with a balloon on the end or the interest rate resets or goes into an adjustable rate.
A lot of those are going to be resetting here pretty quickly. If we don’t have some intervention from the government to work with the banks to be able to work that out, then there’s a big risk there. Some of those loans may reset at a much higher rate, which could make a huge ripple effect through the commercial real estate. Now, from what I’ve been told, the government is aware of that and they’re working very diligently with they’ve already been doing some loan modifications and such at a higher level, but that’s a big risk. Then natural disasters and weather events. Listen, regardless of where you’re at with global warming or global change or whatever you want to call it, the reality is if you look at it statistically, our storms have increased in severity and in number.
So, in the last few years, there have been some major disasters that have had a huge impact financially on our economy and we are not seeing any changes occurring in that whole area. So, we don’t know how severe they’re going to be or how expensive they’re going to be, but that is another risk that we have to the economy. I’m not going to talk about luxury. We’re going to skip the luxury stuff. It is interesting. All right. Let me touch on commercial real quick, because I think this is pretty interesting. All right. So, office space, one of the issues that we have with office space is that they’re already at pretty high vacancy rates, the highest that we’ve seen in a long time. A lot of that comes from the pandemic.
When everybody left, and went back home, they started working out of the house and then companies didn’t require their employees to go back, so they didn’t need all the office space any longer. Now, some of them are starting to go back to work and requiring their employees to go back, but not everybody. So, there’s a huge vacancy. Because of that supply and demand, increased supply, there was downward pressure on rates. So, we have declining rates in that space.
The most pressure is on the class A space and that is because if you were an office space renter, if you had a bunch of office space and class A is like top of line, class B is mid, and then class C is low end. But the class B people saw the rates at class A were so economical, they’re like, “Hey, we can pay the same amount and get a class A office.” So that’s what they’re doing. They’re moving up, everybody’s moving up. So, the lower classes like class C are going to start showing some pain as far as vacancy and even in class B. Predicting that class A is going to get filled up first and then the Bs and Cs are going to be hurting there.
Then here it says the commercial debt in four years, that is the reset of all the commercial debt on the office spaces out there. There’s $2.8 trillion in commercial debt and that’s all going to be due in four years or it’s going to reset at a higher rate or it’s going to have to get refinanced. When you refinance, they’re giving up their 5% rate for a 10% rate deal. So, that’s going to be painful. So, that’s going to be interesting to see. Multifamily, there’s downward pressure. We have had construction and multifamily. Once again, just drive around Atlanta. Apartment complexes are going up all over.
Because of that influx of supply, it has pushed down rates a little bit, but not anything that didn’t need to happen anyway, because it’s gotten expensive over the years to rent, specifically in the Atlanta area. Our rents got high very, very quickly. So, this is a good thing to push those rates down a little bit. Retail, there’s a bunch of stuff going on in the retail market. The large malls, I mean they’re shutting down, they’re closing down, they’re repurposing those now into this consumer experience spaces. I don’t have a good example of what that might be off the top of my head, but they’re repurposing the retail space. So, it’s turning over. It’s turning into something different besides your traditional retail stores.
So, there are changes that are occurring at the retail level. Those vacancy rates because of that are decreasing. One of the other trends that we’re seeing in retail is because of the issues that we have with theft in retail, the larger retail stores are removing products from their stores. You’re going to go in and you’re going to see a virtual image of the item itself and you’re going to have to order it right there. Then hopefully by the time you get home, it’s going to be sitting on your doorstep. That’s the trend that’s happening. So, inventory is disappearing from the retail stores, which means you don’t need as much room. So, that retail space is going to change. I don’t know how you do clothes that way.
I can’t imagine that you’re going to have to do that in the clothing stores, because you still got to try stuff on, right? Look at it and touch it. But if you’re going to CVS and you got a bottle of aspirin, I mean I don’t need to see the bottle of aspirin. I just would just get that on Amazon anyway. I don’t know if I’d go to the store. Anyways, retail space is going through changes. It’s interesting. The industrial, that’s probably the most stable area of commercial that we have right now. You got a little slight pullback after the surge in the pandemic with e-commerce, but not a whole heck of a lot. So, that’s probably the most stable out of all of those. So, that’s the commercial.
That’s how we see commercial happening in 2023 and some of the things that we can predict in 2024. Multifamily unit starts. Once again, this is the apartment complex that we talked about. I’m not quite sure what this is trying to tell us, but okay. All right. Yup. Apartments going in. Commercial loan delinquency rates, are still super low, right? Commercial folks are still paying their bill. It may change a little bit when we get to this four-year mark. Remember that four-year mark, remember when we talked about this? Four years, it’s going to reset. It’ll be interesting to see when those rates change if this ticks up. So, they’re going to have to figure that loan stuff out with these commercial loans.
They’re going to figure that out, which goes back to the government’s going to have to intervene. All the rest of the stats are geared towards agents and brokers and talk about where buyers come from what are they looking for and where sellers come from. So, I’m not going to go through that. All right. If you want to talk about it, reach out to me. I’ll be more than happy to talk to you about that and share all that information. It’s interesting if you’re really into that. But if you don’t care about all that stuff, I’m not going to go through it. So, hopefully, this was helpful. I will be more than happy to talk to anybody about this and more depth if you have any questions about it.
Hopefully, this gave you a really good snapshot of what 2023 looked like in the real estate market and also the US economy and use this information. It’s telling us a story. We use data to tell us a story. What is the story that it’s telling us? And then be able to use that data and predict what’s going to happen in the future. So, here’s the gist of what we see. We see a continuation of a fairly strong real estate economy in the local area here in Atlanta. For the last three or four years, we’ve such on fire. We’re going to see a pullback from that. We already saw that in 2023 and a continuation of that pullback. I think it’s a healthy pullback from where we were at. We’re not going to see a decrease in appreciation of our homes. I see a slight increase, maybe 2 or 3% appreciation in our homes, which is nice and healthy.
The rates may come down a little bit later this year, maybe because of that yield spread. We’ve got a big yield spread in there. So, there’s a little wiggle room in there that I think that the market will naturally give up and those rates will naturally come down a little bit, but nothing drastic. We’re not going to be down to 3, 4, or even 5% anytime soon. So, let’s get over that. That’s the reality of it. Buyers, there are still ample buyers out there. If you’re a seller, there’s still a lot of buyers. There are active people looking for homes. So, it’s still a seller’s market technically, and that’s going to continue into 2024. We don’t see any hiccups there.
Buyers, there’s not enough inventory out there. Look at the new construction. Get with a great agent to find a retail. You’re going to have a hard time or a harder time finding a home. You have to be a little bit more flexible with that just because of the lack of inventory, but it’s still out there. So, deals are out there ready to be made. Again, like, subscribe, and do all of those things, so I can continue to get this great content out to you. Reach out to us with any questions. Again, thanks, and hope everybody’s having a great day.