Hey everybody. Let’s talk about our local real estate market and what is going on. We’ve had a lot of news, a lot of movement here lately, and you need to understand what’s going on. Let’s get rid of all the anxiety and the fear that is created with not being clear on exactly where we’re at. Clarity is power, so let’s talk about what is affecting our local real estate market and what we’re actually seeing at the local level. All right, so I’m going to put my appraisers cap on here real quick and get a little geeky with you and talk about the four factors that are affecting real estate and what is happening right here locally. Remember, real estate is local. So when you’re listening to the national news and you’re starting to get a little bit scared or fearful, you need to understand and come back to what is actually happening in our local area.
The number one factor of the four, one of the four, the first one is social. What is happening on the social level right here in our local area? That would be things like trends in neighborhoods. How safe is it here in this particular area? What’s the employment like? What is going on socially? The great news is we are very healthy in northwest Atlanta. We’re a very desirable overall. We’re a very desirable location for folks. People love the climate here, they love the economic base here and from a social standpoint, there is tons of stuff to do in the Atlanta area, so we’re a very desirable area. So from on a social level, we’re doing great. It’s a great place to live. We love our communities here and overall it’s a fairly safe place to be.
All right, the second factor that affects values is government influence or the government’s role in what is going on in the local market area. Now I know that sounds pretty global and you may be thinking, “Well, that’s more of a national thing.” However, there is local government influence that we have that affect the values as well. Those are things like police departments, fire departments, does it have access to it? What are the local regulations that are occurring? One of the things that we see happening are the smaller municipalities creating laws and regulations around short-term rentals, which is kind of squeezing out the Airbnbs. They’re seeing an influence or an increase in that and they just don’t like it for whatever reason. Rent restrictions would be another influence, a government influence that would affect values.
So as we move forward, we really don’t have a lot of heavy, heavy government influence that are affecting the values. We all are pretty safe. Once again, we’re going to talk about safety. We’ve got police departments. Most fire departments have great access to particular neighborhoods and we don’t have any crazy regulations that are really squeezing the market. So overall, once again, our regulations or government is pretty minimal, pretty standard in our particular area and not too stifling or restrictive.
All right. The third reason, which is probably the biggest reason right now are economic factors. So we’ve got a lot of stuff packed into this economic factor. Those would be things like the employment rate. What are the wages that are people that are actually working in this area? What’s the average wage in the area? Is there employment, the employment rate? And then there is of course the overall interest rate of what’s going on. So there’s a lot underneath the economic factors that affect value. Probably more going on in this little section, this factor than any of the other ones right now.
So let’s unpack this a little bit. Let’s talk about rates. All right, because it’s everything. Every time you turn around, all you hear is about interest rates going up. So let’s take a step back and think about this. Historically, when we look at rates, the average rate is around 8%. That would be like an healthy interest rate when you look at it as a whole and historically. Obviously, we’ve been way underneath that for so many years that we are really having a hard time swallowing 8%, are you kidding me? Currently, we’re right around 6%. I would anticipate, and we’re telling our clients that if you can lock in a rate before the end of this year at about 6.5 or below, you’re going to be sitting pretty. I would be very happy if you could lock in at a rate anything below 6.5%. I know that’s a hard pill to swallow right now.
We are so used to seeing the 2.8s to 3% that this whole, “Are you kidding me, 6.5%?” Is driving you crazy. However, historically that’s actually still really good. So we got to take a step back. It’s going to be a little bit painful. It’s kind of like being out of the gym for a year or two years and then all of a sudden deciding to go back in the gym. It’s just tough. Those first couple of weeks are really tough. So anyways, it’s a hard pill to swallow. However, historically it’s still a really good rate, but that’s the big one that is affecting things and it will affect things. We’ve seen the first time home buyers are really taking it in the chin. The higher rate at 6.5% has really priced a lot of people out. There’s not a lot of homes at that lower price point that are out on the market, which is a whole other issue. Anyways, that’s what’s going on with rates.
The other issue that falls under economic factor is employment. We’re really going to be watching and monitoring the unemployment rate. We are starting to see some layoffs. We are also seeing people, companies holding off on hiring. We’re hearing more and more hiring freezes. I’m hearing more and more rumbling of layoffs primarily in the tech sectors. I’m hearing about a lot of layoffs over on the West Coast and companies out there, maybe up on the East Coast. I haven’t heard of a lot of them right here in the northwest Atlanta area. I’ve heard about hiring freezes and holding off, but we’re really going to want to monitor the unemployment rate here locally. Right now we’re doing okay, we’re hanging in there. It’s still really low. Anybody that’s tried to get anything done here lately has realized that we got a labor shortage. So I don’t know how quick that’s going to switch, but that is something that we’re definitely going to want to monitor.
Going back and talking about rates a little bit more, we haven’t really seen a lot of tightening with credit and getting people approved, which is a good thing. So that’s pretty stagnant. That’s pretty level. So we haven’t seen a lot of things that affect that. But once again, that would be an economical condition or a restriction that we would actually see, but we haven’t seen that. I mean, credit has been pretty much the same. The rates are going up, but as far as getting people approved and tightening restrictions and such, that’s been pretty stagnant. The other thing is our tax base here is pretty good. We haven’t seen a lot of crazy things happening in that area, so we’re going to have to continue to monitor that as well.
All right, the fourth factor is the physical and environmental factors that actually affect real estate. That’s going to be is there inventory on the market? Is there physically, there are houses here, enough adequate housing for our population? Physical is also any restrictions that you have on the land use or do we have a mountain range or rivers that are impeding the growth? We don’t have any of that. Atlanta is pretty set where we don’t have any natural boundaries around us so we can grow on all sides, which is kind of unique for a lot of larger metropolitan areas when you think about it on a national basis. So we don’t have a lot of physical restrictions. However, let’s talk about inventory, because that has been another big topic that has been on the front page for quite some time.
Yes, we are still way behind on where we’re at with inventory. Much of that is because we have a lot of people migrating down into the Atlanta area. That’s another big factor that is affecting things. We have a population growth. People are moving down here, there’s not enough homes to accommodate everybody that is currently here, let alone everybody that’s coming in from different parts of the world. And the thing is, you got to understand there’s no quick fix to that. The market can’t turn around and just all of a sudden dump 50,000 new homes on the market. It takes time and over that same period of time, we have more and more demand that is actually building. So because we have such an imbalance of supply and demand, that is going to take some time to really flush out. So we’re going to be depleted or be behind the curve as far as the needed housing on the market for quite some time.
So a couple other things that we have seen in the market that really affect what’s going on or you should pay attention to is the institutional buyers. Now last year, the institutional buyers, those are the big corporate companies that buyers have been competing against for homes they usually buy and either are flipping them like the Open Doors of the world or they’re buying and holding and turning them into rentals. We have seen last year, out of all the houses that hit the market, I believe last year, depending on what report you read, anywhere from 18 to 20% of all the new home listings were actually sold to an institutional buyer. That is a big, huge market share, let me tell you. And being a buyer in this market has been so frustrating trying to compete against those institutional buyers. So we’ve got some good news for the buyers out there, the institutional buyers, some of them are starting to scale back. Some of them aren’t being as aggressive with their offering prices as they have been in the past.
They’re basically reduced pricing well below, kind of like a wholesale pricing. So you’re buying at retail, they’re trying to buy at wholesale. So that gives you a leg up and a little bit more of an advantage moving forward. So that’s some good news for buyers. So they’re starting to loosening up, maybe pulling back a little bit. I personally think they’re having a hard time getting funding because they have really taken a hit on their stock markets lately and basically they don’t have that influx of cash that’s being pumped into their organizations like they had been in the past. I don’t have any real proof of that, but I have a feeling that’s kind of what’s going on. So anyways, that’s all good news.
Listen, we’re doing good here in Northwest Atlanta. If you’re concerned about some kind of a crazy crash that’s going to happen, this is not 2007, 2008. Again, this is a totally different situation that we are in. We’re healthy because we have such an imbalance of supply and demand. We still have a lot of demand and not enough supply, which is always going to keep pricing elevated. Are we going to see the 20, 21% value increases year over year? Probably not. That’s going to come back down to reality. Are we going to see a price decrease? We’re going to keep on watching it. Right now, we don’t see that, we don’t see that occurring for at least the next 12 months. And then beyond that, we’re going to keep an eye on the unemployment situation. We’re going to keep an eye on the rates and we’re also going to keep an eye on the third factor.
And another something else that we look at is the yield curves to find out what’s going on there. That’ll really give us another indication. So overall, I know there’s a lot of fear out there and concern out there and anxiety, that’s the national level. Locally, just be thankful you’re in a great part of the country that still has a lot of demand and a great area and we’re pretty dang healthy right here. So we’re here for you. If you have any other questions or have any comments, please do so below. Thanks.