Savannah Chamber

26 9 The 2020 outlook for the homebuilding industry therefore is good. Housing and real estate development will be a driver of Georgia's economy. The number of single-family home starts for new construction will increase by one percent and new multi-unit homebuilding will increase by three percent. Georgia gets a five-for-one from the housing recovery because (1) home builders and realtors benefit directly and (2) demand increases nationally for goods produced by Georgia's large floor covering, building materials, and forestry industries. Plus, (3) our large transportation and logistics industry benefits from higher levels of activity in construction – a very transportation-intensive activity. In addition, (4) recent and continuing increases in U.S. home prices will make it even easier for companies and people to relocate to Georgia. Finally, (5) the home equity generated via home price appreciation will boost small business formation and expansion as well as consumer spending. Georgia's housing market is responding to a more favorable balance of supply and demand. Increased demand for housing will come mostly from job growth. Those new jobs, and slightly bigger paychecks – plus appreciating home values – will give more people the wherewithal, and the confidence, to buy homes. As of mid-2019, Georgia's existing home prices were 20 percent higher than their pre-recession peak. The year-over-year – 2019 Q3 compared to 2018 Q3 – increase was a strong 5.6 percent. The degree of home price recovery varied widely within the state, however. For example, on average, existing home prices in the Atlanta MSA were 26 percent higher than their pre-recession peak level. In contrast, the price of an existing home in rural Georgia was only four percent above its pre-recession peak value. Home price appreciation will continue through 2020, but home prices will rise more slowly than in 2012-19. Home prices appreciation is critical to the outlook for homebuilding because unless home prices are increasing, builders will hesitate to build new speculative homes because it may take them too long to sell the homes that they contemplate building. For the state and nation as a whole, the home price recovery is complete, but those nominal gains do not consider inflation. Nonetheless, the recovery of home prices in nominal terms will help to sustain the housing market's recovery. In addition, rent affordability is at an all-time low and mortgage rates are low. In 2020, recession fears and supply-side constraints will continue to limit housing sales. Supplies of new homes are still constrained by years of underbuilding, a shortage of lots, and a scarcity of construction workers. In addition, there is a scarcity of listings of existing homes, and it is especially acute for homes in the bottom value tier. That is partially because some of Georgia's homeowners are still underwater on their mortgages and are therefore unlikely to put their homes up for sale. It is especially troubling that the negative equity is extremely concentrated in the low price, or starter home segment of the market. That hurts the trade-up market. In addition, many homeowners realize they will not qualify for a new mortgage. Therefore, many homeowners will stay put even though negative equity is receding and mortgage rates are low. The price of the average existing single-family home will rise by three percent in Georgia in 2020. That constitutes a substantial slowdown in home price appreciation. For example, the most recent year-over-year increase – between 2018 Q3 and 2019 Q3 – was 5.6 percent. As potential homebuyers see a record of continuing home price appreciation, more will opt to become homeowners. Rising rents strongly reinforce this trend. In 2012, investors were the main force behind home sales. In 2013-19, people who buy homes to live in them joined investors to become a second major force powering home sales. Nonetheless, as home prices rise and the number of distressed properties shrinks, home sales to investors have dropped. Sustaining the recovery of the homebuilding industry through 2020 means that trade- up buyers and first-time buyers must become more active. That up-cycle has begun, and it will become more vigorous. There is tremendous potential for even more active housing markets because a huge number of young people are still living at home or are doubled-up with roommates rather than living in their own apartments or homes. Improving economic and housing market conditions in combination with soaring rents will cause some of that potential to be unleashed in 2020. Demographics Demographic forces are another factor behind Georgia's improving economic performance. For decades, Georgia depended on growth based on high levels of in-migration. That growth model stopped working during the Great Recession due to a dysfunctional housing market and the weak labor market. In fact, household formation dropped to its lowest levels since the 1940s. Even as Georgia's economic developers began to achieve success in recruiting new industry in 2012, the net migration of people to Georgia continued to decline through 2013. That is because it takes a while for new project announcements to generate jobs.

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