Savannah Chamber

25 11 The combination of higher mortgage rates and the very large increases in home prices over a short period of time substantially reduced housing affordability. A third factor behind the housing downturn is a temporary loss of faith in the economic situation. Shortly after Russia's invasion of Ukraine, people became very concerned about recession, especially as energy prices and inflation soared. The slowdown in job growth in the second half of 2022 reduced potential homebuyers' confidence, making people less willing to commit to buying a home. These same factors reduced home builders' confidence in their ability to sell newly built homes whether under contract, or built on spec. In 2023, sales of new and existing homes, permits to build new single- family homes, and permits to build new multi-family homes will decrease. Investors will be less active in Georgia's housing market. Inventories of homes for new and existing homes for sale will rise – albeit from very low levels. In 2023, home prices will decline, but we expect home price declines to be moderate compared to what happened during and after the Great Recession. While homes are significantly overvalued, we do not expect a repeat of the housing bust because the fundamental supports for housing demand are stronger than prior to the Great Recession. In addition, current supplies of homes for sale and under construction are very limited, which is the opposite of the situation prior to the Great Recession. The more favorable balance of supply and demand suggests that housing markets will not crater and are very likely to recover quickly once inflation abates and the Federal Reserve begins to cut interest rates. Housing is likely to lead the economic recovery that we expect to begin in the later part of 2023. In the wake of the pandemic, the home is fundamentally more important to a larger proportion of the population. A recession will not change the higher regard people have towards home ownership. We expect a mild recession to cause the number of single-family home starts for new construction to decrease by 14 percent in 2023. New multi-unit homebuilding will decrease by 24 percent. Home price declines will discourage potential homebuyers from making home purchases. People will wait until economic uncertainty diminishes. The large number of new jobs created over 2021-22, excess savings, good household balance sheets, and bigger paychecks will help to limit the decline in housing activity. Those same factors will fuel housings' recovery in 2024. Although housing and real estate development will not be a driver of Georgia's economy in 2023, housing will be an important driver in 2024 and beyond. That's very important because Georgia gets a five for one from housing: (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) appreciating US home prices makes it even easier for companies and people to relocate to Georgia. Finally, (5) the home equity generated via home price appreciation boosts small business formation and expansion as well as consumer spending. Home Prices As of the second quarter of 2022, Georgia's existing home prices were 46 percent higher than prior to the COVID-19 pandemic. The year-over-year gain was 26 percent. Nationally, the year- over-year gain was 21 percent. We expect home price appreciation will slow in the second half of 2022. We expect home prices to decline in 2023. Home prices depreciation dims the outlook for homebuilding because unless home prices are increasing, builders hesitate to build new speculative homes because it may take them too long to sell the homes that they contemplate building. Specifically, we expect the price of the average existing single-family home will decline by about 8 percent in Georgia in 2023. The most recent year-over-year increase – between 2021 Q1 and 2022 Q1 – was 23 percent. Therefore, unless the home was purchased very recently, an 8 percent decline is a paper loss for the vast majority of homeowners. Plus, rents will continue to increase fairly rapidly, which will help compensate homeowners for modest home price declines.

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