Recently a neighbor of mine called me in a panic about the ‘housing bubble’ and she thought should hurry up and sell her house to avoid losing money when prices drop. What?! Apparently there are agents out there using the ‘housing bubble’ scare tactic to get people to list their homes for sale. If you’ve been approached to sell before you are ready because of the rumored ‘bubble’, let’s just calm down for a moment and look at the facts.

Fact #1: Bubbles happen. First, let’s look at what exactly is a ‘bubble?’ Since the Global Financial Crisis of 2008, the term ‘bubble’ has taken on a much scarier connotation than previous to the housing bubble that burst in the mid-2000s. Technically, a bubble is when home prices are driven higher by high demand and limited supply of homes for sale. However, after time, the supply catches up with the demand and the market finds an even keel. This, my friends, is normal and is known as cyclical market fluctuation.

So, are we going to see prices adjust due to normal market cycles? Not anytime soon. See Facts #2 and #3.

Fact #2: Atlanta needs more than 93,000 housing permits to meet demand. The National Association of Realtors recently released the results of a study of new home construction relative to job gains over a three-year period (2013-2015) to determine the markets with the greatest shortage of single-family home construction. You can read all about how the number was calculated here, but the point is: despite healthy job growth bringing new home buyers into Atlanta, we have critically low homebuilding activity that will continue to push prices higher. Let’s all hope that whatever is holding builders back in Atlanta will change soon!

Fact #3: Atlanta’s market is diverse. In chatting about this subject with my Managing Broker, Dac Carver, he made a great point that the market in Atlanta is multi-layered, so it’s best to look at each layer to predict cyclical market fluctuations.

The Months’ Supply of Inventory housing metric demonstrates the type of market—sellers, buyers or balanced—we are experiencing. NAR says a balanced market is when there is six months’ supply of inventory. Figure 1 below shows the historical supply of inventory for single-family homes in the North Atlanta High School cluster, where I live and work. Areas with homes priced $500,000 or below have three months’ supply; areas with homes priced $500,001 to $1 million are balanced. Above $1 million is contracting with 15 months’ supply.

While prices are coming down above $1,000,000, the vast majority of the housing market just isn’t going to see falling prices until there is more inventory, whether new construction or existing homes.

I do recognize that historically low mortgage rates have been critical in keeping homes affordable, and the Federal Reserve is expected to start raising rates in December. Economists believe rising rates could start the downward movement of prices, but also agree that prices won’t start to fall during the Fed’s early rate increases.

If you are feeling pressured to sell by someone screaming that the ‘sky is falling,’ give me a call and we can walk through your specific situation. It’s always good to consider a second opinion. In the meantime let’s all calm down and try to enjoy this gorgeous fall we are having!

Figure 1: Months’ Supply of Inventory for single-family homes in North Atlanta High School cluster