By Ellen Haberle

“A wild ride” isn’t the way real estate agents typically describe the Atlanta housing market. But it’s what Redfin agents have been saying all year. In the Atlanta metro area, median home prices surged 28 percent between July 2012 and July 2013 and the percentage of homes that went under contract within two weeks increased from 1 to 24 percent. Then, in August, median sale prices fell 3 percent, the first monthly drop since February.

What drove this massive price growth? It’s simple. As soon as home prices in the Atlanta metro area stabilized in early 2012, homebuyers, institutional investors, and “Mom and Pop” home flippers were poised to seize on low prices and historically low mortgage rates. High demand from homebuyers was met with limited inventory for sale, which drove prices northward. This created a strong seller’s market and stiff competition for buyers.

Aside from a slight drop in prices in August, multiple factors suggest a correction in Atlanta’s market is near, if not already upon us. Mortgage rates, which hovered around 3.5 percent since last summer, are now nearing 5 percent and rising. Higher rates coupled with now-higher home prices mean that buying a home in Atlanta simply isn’t as good of a deal as it was a year ago. This is evidenced by the behavior of investors, keenly focused on profit-potential, who are starting to cut back on home-buying. Between February and July alone, the percentage of homes purchased by firms fell from 28 to 23 percent of sales. Furthermore, sellers are losing their ability to call the shots in negotiations. Buyers in August paid on average 5 percent below the asking price, compared to one percent below the asking price the year before. Finally, home builders are ramping up building to meet buyer demand, which should help alleviate inventory shortages. As of July, the Atlanta metro area had issued the third largest number of new residential building permits in the country, according to the National Association of Home Builders.

It is a classic “market adjustment.” So, does this mean home prices in Atlanta will take a nosedive in the coming months? Probably not. There are simply too few homes on the market to satisfy all of the buyer demand; the number of homes for sale is about half the level it was two years ago. So, if market conditions stay the same, we expect home prices will continue to grow, but at a much slower pace than the first half of the year.

Higher mortgage rates, however, could reroute home price trajectory. For those looking for a home in Atlanta, nearly 30 percent said that they would “step back” or “stop” their home search if mortgage rates rose above 5 percent. If mortgage rates do exceed this level, it’s clear that demand would decline significantly and home prices are likely to begin to trend downward before the holiday season.

While it still remains firmly a seller’s market, Atlanta’s “wild ride” is nearing its heyday. Is balance better?  It is for buyers, who are likely to enjoy greater negotiating power.

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Ellen Haberle joined Redfin in 2013 as a Real Estate Economist after spending nine years at the Central Intelligence Agency as an Economic Analyst and a Financial Analyst. Ellen received a Master’s degree in International Economics from Johns Hopkins School of Advanced International Studies in 2011 and a Bachelor’s degree in Finance and International Business from Texas A&M University in 2003. For more by Ellen Haberle, visit Redfin’s Research Center.

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