Smart foreign investors, Invest in the Atlanta Residential Market
Estimated reading time: 9 minutes
Atlanta, as a large modern metropolis, offers a diverse and high-quality of life in education, personal development, entertainment, recreation, sports, arts, and culture. It is considered as the cultural capital of the South and is one of the greenest cities in the United States. Atlanta is home to major league professional sporting teams, including the Atlanta Falcons (football), the Atlanta Braves (baseball), and the Atlanta Hawks (basketball).
The Atlanta residential market is one of the 10 largest markets in the United States and the third-largest in the Southeast. According to the July 2019 estimates by the U.S. Census Bureau, the Atlanta metropolitan area was ranked 9th in terms of population size, which was estimated at 6,020,364.
Atlanta is an international transportation hub and the business capital of the South. This is underscored by the fact that the Hartsfield–Jackson Atlanta International Airport is not only the busiest airport in the United States but also the busiest airport in the world. In 2019, it handled 110.53 million passengers, and its passenger traffic has been increasing steadily since 2001.
Investing in the Atlanta residential real estate market is a smart move for several reasons:
- It is backed by one of the 10 largest and fastest-growing economies in the United States, reducing long-term investment risk
- It is fuelled by above-average population and income growth, which contributes to a robust and rising demand for housing
- Offers high liquidity and easy investment exit
- Offers competitive income returns from renting the property
- Offers above-average long-term capital returns
A strong, diverse, and fast-growing economy reduces long-term investment risk and supports fast population growth
Atlanta’s residential market is backed by a solid, diverse, and fast-growing economy, producing new jobs at an above-average rate, which supports above-average population growth.
The Atlanta metropolitan economy is the 8th largest in the United States in terms of employment, counting 3.98 million jobs in 2019, and the 11th largest in terms of Gross Domestic Product. Atlanta is home to major national and international companies, including Fortune 100 companies, such as The Coca-Cola Company, Home Depot, United Parcel Service, Delta Air Lines, and AT&T Mobility.
Atlanta’s economy is quite diverse with no sector accounting for more than 9.1% of total employment (see Figure 1). A multitude of businesses in retail trade, professional, scientific, and technical services, waste management and remediation services, health care and social assistance, government and government enterprises, and transportation and warehousing compose the core of the area’s economy. This diversity makes Atlanta’s economy less vulnerable to negative developments in any specific industry. This in turn reduces the long-term risk of investments in the area’s residential market.
Figure 1 Atlanta metropolitan area employment by economic sector in 2019
The fast pace of the growth of the local economy is evidenced in the average job growth rate of the last ten years. The annual job growth rate in the Atlanta metropolitan area over the period 2010-2019 averaged 2.6%, well above the national average of 1.6% for the same period.
Source: Bureau of Economic Analysis
Above-average population and income growth create a robust and rising demand for housing
The population of the Atlanta metropolitan area increased by 733,646 people to over 6 million over the period 2010-2019. This represents a growth rate of 13.9%, which is more than twice faster than the rate at which the nation’s population increased over the same period. According to the latest population and employment forecast released by the Atlanta Regional Commission the Atlanta metropolitan area is expected to add 2.9 million people by 2050, pushing the area’s population to 8.6 million. That would represent a 48% increase in the area’s total population, which will lead to a huge expansion of Atlanta’s residential market over the next 30 years.
According to American Community Survey data, in 2019 the median age of the area’s population was 36.8 years, with 48.5% being in the age group of 20-54, which comprises the age groups that are most active in the housing market by renting a house, buying their first home, or upgrading to a better house (see Figure 2). In terms of racial composition, 52.2% were White, 34.7% Black or African Americans and 5.9% were Asian.
Figure 2 Atlanta metropolitan area population by age group in 2019
Besides population growth, robust and fast-rising demand for both owner-occupied and rental housing in the Atlanta residential market is also fuelled by the fast-rising income and wages.
According to Census Bureau data, the per capita income in the Atlanta MSA in 2019 was $37,331 and the median household income $71,742, about 20% higher than the state-wide median household income and 9.2% higher than the national median household income. Furthermore, 64% of the area’s households had an income in excess of $50,000. Over the period, 2010-2019, total personal income and wages/salaries in the Atlanta MSA have been rising at the average annual rates of 5.4% and 4.8%, respectively, which are considerably above the respective national rates of 4.4% and 4,1%.
Rental housing demand in the Atlanta residential market has been rising faster than supply in the last three years as the rental housing vacancy rate has been declining steadily. In particular, it has declined from 8.8% in the fourth quarter of 2017 to 5.8% in the third quarter of 2020 (see Figure 3).
Figure 3 Rental housing vacancy rate in the Atlanta metropolitan area
Source: U.S. Census Bureau
Large transaction volumes provide high liquidity and easy exit from investment
The Atlanta residential market is one of the 10 largest metropolitan housing markets in the USA. According to the Georgia Association of Realtors (GAR), in 2019 a total of 92,837 housing units were sold in the Atlanta metropolitan area, representing a 2.9% increase compared to 2018. The average number of days in the market until sale was 42 and, on average, houses were sold at 96.8% of the original price listed.
The robustness and resilience of the Atlanta residential market is underscored by the fact that the Atlanta metropolitan area was selected by the National Association of Realtors as one of the top 10 U.S. markets that have shown resilience during the pandemic and are expected to perform well in a post-COVID-19 environment.
The Atlanta residential market offers competitive income returns
According to the most recent CBRE Cap Rate Survey, in the summer of 2020 the cap rates in the Atlanta metropolitan area for stabilized Class A multifamily rental properties in infill areas ranged between 4.2% and 4.5%, and between 4.5% and 5% in the suburban areas. These rates reflect also, and the income returns achievable by investments in rented single-family houses.
According to the data provided by the CBRE survey, the income return provided by residential investments in the Atlanta metropolitan area in 2020 was similar or higher than the income returns that can be achieved in most of the residential markets covered by the survey.
The Atlanta residential market offers to investors strong and above-average capital returns
The strength and robustness of demand for housing in the Atlanta residential market is underscored by the strong and consistent increases in house prices in the last nine years.
According to the National Association of Realtors (NAR), the median sales price of existing single-family homes in the Atlanta MSA in the third quarter of 2020 was $271,800, which represents a 14.2% increase compared to the median sales price of $238,100 that was recorded in the third quarter of 2019. Furthermore, the Atlanta Association of Realtors reports that the median sales price of all houses sold in the Atlanta residential market in November 2020 was $310,000, representing an increase of 15.7% from November 2019.
According to the Federal Housing Finance Agency (FHFA) House Price Index, house prices in the Atlanta metropolitan area have been rising consistently since 2012 at well-above national average rates ranging from 6.9% to 12.6% (see Figure 4). These strong price increases result in high capital returns, which in combination with income returns between 4% and 5% can provide to investors an annual total return in excess of 10%. The FHFA house price index measures changes in prices for the same house quality in order to capture changes in prices that are solely attributable to market forces. As such, it is a better measure of changes in market prices through time than median prices.
Figure 4 House price changes in the Atlanta metropolitan area: 2012-2019
Source: FHFA House Price Index
Median house prices in both the Atlanta City and the Atlanta metropolitan area from 2015 to 2019 reflect the same rising trend portrayed by the FHFA house price index. As indicated in Figure 5, the median house price in Atlanta City increased from $227,900 in 2015 to $284,990 in 2019 representing a 25.1% increase, while in the Atlanta metropolitan area it increased from $185,000 in 2015 to $245,000, representing a 32.4% increase. Again, these price increases point to the strong capital gains that investors in the Atlanta residential market can achieve.
Figure 5 Median sales prices in Atlanta City and the Atlanta Metropolitan Area 2015-2019
As it has been shown throughout this article, the Atlanta economy and residential market combine all the key elements that can reduce long-term investment risk and provide investors with easy investment entry with multiple and diverse investment choices, high liquidity and easy investment exit, competitive income returns, and strong capital gains. Also, the area’s prospects look promising as it has been selected by the NAR as one of the 10 top USA residential markets that are expected to do well after the end of the pandemic. That is why it is smart to invest in the Atlanta residential market.