Trophy Point Realty Group | Savannah Georgia Real Estate

Local Market Statistics

The median home price in the Savannah Metro was $316k at the end of October, just slightly below the all-time high of $318k set in May of this year.  The median price 12 months ago was $299k.  Months of inventory moved up to 3.38 months, the highest reading since January 2023’s 3.53 months.  Months of inventory in a balanced market is 6 months, meaning that this market is still experiencing a lack of supply.  We are currently seeing a seasonal slowdown in the market that often happens between October and January but has not occurred during the super hot seller’s market we’ve seen since May of 2020.

1,251 new listings hit the market in October, which is roughly in line with historic trends, though new listings this year have been well below average.  There are currently 3,146 active listings, up from an all-time low in January 2022 of 2,040 and April 2023’s low of 2,465.  It’s not a coincidence that inventory began to climb as interest rates first started to climb in January of 2022.  Inventory has increased markedly since April of 2023 when rates began a relentless rise from the low 6’s up to 8% three weeks ago (rates have since dropped back to 7.5%).  The fact that inventory is climbing despite fewer new listings than usual means that buyers are leaving the market at a greater rate than sellers.

What About Interest Rates Anyway?

This is a question we get all the time, as you might imagine.  Folks want to know what the impact of high rates has been on the market and when rates will likely come down.  We can’t really know when they’ll come down, but we can take a look at how they’ve impacted the market.  We have a lot of anecdotal evidence that leads us to believe that rates above 6.5% start to slow down the market, rates above 7% begin to have a more noticeable impact, and as rates approach 8% market activity seems to all but stop except for the highest quality and well-priced homes.  Disclaimer – there are parts of the market that are more and less impacted by rates.  Luxury homes seem to be less impacted as many buyers are all-cash anyway, and investment properties/multifamily are more impacted.  Let’s take a look at some data…

The first piece of data we need to look at is what housing is costing Savannahians each month.  Data in the chart above comes from a few different sources.  Mortgage payment data comes from Savannah MLS data on home prices, Federal Reserve data on average interest rates, and adds in typical property tax and insurance costs.  Rent data pre-2022 comes from rentdata.org, 2022 and 2023 comes from Zillow.

The most obvious observation is that it was significantly cheaper to own than it was to rent until early 2022.  Not coincidentally, this was also the period that prices locally saw the most appreciation as the median home price rose from $200k in February of 2020 to $280k by March 2022 – a 40% increase in two years.  It’s also interesting to note that the monthly mortgage payment remained almost unchanged during this entire period of appreciation.  This is compelling evidence that the rapid rise in median home prices locally was heavily influenced by record-low mortgage rates.  Sale prices have continued to increase since March 2022 but at a slower rate – prices are up 12% locally since then.

You may notice that both rent prices and mortgage payments began to rise significantly in 2022.  In our opinion, this is a large part of why home prices continued to rise locally even as rates also increased – people looking for housing knew they were paying through the nose whether they decided to rent or own.  In the chart below we’ll explore this a little more by comparing the median rent payment to the median mortgage payment.  To make this chart we simply subtracted the rent payment from the mortgage payment to determine the difference between the two, then divided that difference by the rent payment to express the result as a percentage.  A negative result means that mortgages are more affordable.

We think this is a very interesting and relevant chart that illustrates just how tough it is for anyone looking for housing currently.  As recently as June of this year, rents were only 4% more affordable than mortgages, with the median mortgage costing $2,588 a month and rent costing $2,484 – up from around $1,500 in late 2018.

When looking at this chart, it’s important to not put too much stock in monthly variations in the data, because interest rates have been moving up and down quite a bit –  instead, look at the overall upward trend.  Monthly rental payments are becoming more affordable than mortgage payments locally, with a significant spike in the last few months as mortgage rates have surged and rents dropped.  We are now at a point where rents are 28% more affordable than mortgages with the rent at $2,200 and the median mortgage costing $2,825.  (Side note – a recent Wall Street Journal article noted that this trend is even worse nationally.  According to them, it’s 52% more expensive to own than rent nationwide.  Source.)

You may now be thinking – so what?  Will home prices come down?  Well, it depends!  If rates stay above 7% for another 12 months or more, we’d say yes, prices will likely come down in the short term – as long as rents do not also rise.  Rents very well may continue to rise.  If prices do come down, how much will they come down?  Not as much as a current homebuyer might hope.  Remember, most current homeowners have fixed-rate mortgages at low-interest rates.  They are not incentivized to sell unless they’re making money.  And indeed they are not selling – take a look at the chart below showing closed transactions in blue and the median monthly mortgage payment in red:

We’re not data scientists, but we’d say that’s a pretty clear and striking correlation between rising mortgage payments and decreased transaction volume.  We all know instinctively that interest rates more than doubling in the last 18 months will have a large impact on the market, but most folks are wrong to assume it would mean primary the impact is on pricing.  When the majority of sellers have affordable fixed-rate mortgages, there’s no incentive to sell.  If there’s no incentive to sell, sellers will not be keen to sell the house for less than they could have gotten when rates were cheaper.  So they’re just not selling, and the lack of inventory is keeping prices higher than they otherwise would have been.  Let’s take a look at the monthly payment vs total active listings now as we try to tie everything together.

This is a really interesting chart and we’ve broken it down into three different periods.  First is the “normal” market that goes until about June 2020 – right when COVID made the market go nuts.  We see that the total number of listings on the market is stable around 5,000 units.  Then, active listings fell off a cliff until early 2022, declining all the way to 2,000.  This can be partially explained by buyers taking advantage of rock-bottom interest rates, but it’s important to consider other factors.  It’s during this period that Savannah “hit the map” in the eyes of a lot of investors and retiring snowbirds nationwide, work from home trends sent remote workers here, buyers began to buy homes locally to turn into vacation rentals, and rapid local job growth increased the population.  Savannah, by the way, is still very much on the map with these investors who are making 10+ year bets on our local economy – some of them are clients of ours continuing to buy rental properties.

Inventory has begun to tick up as increasing rates force buyers out of the market, but is still about 2,000 units short of our long-term average of 5,000. We believe that prices will likely remain stable unless something forces more sellers into the market.  Layoffs could do that if they begin to happen locally.  If layoffs don’t happen, we believe that average prices will be steady, but transaction volume will continue to decrease.  Considering that manufacturers like Hyundai are only ramping up their activities, we think it unlikely for unemployment to rise much locally.

What does this all mean for you?  If you are a seller, expect it to be more difficult.  Expect a flaky buyer pool prone to back out of a transaction.  Expect to make seller concessions, and expect to list at an attractive price if you want to move the property quickly.  You should still be able to sell your home for more than you paid for it in most cases.  For the buyer, you have a lot more leverage over sellers right now but understand that many sellers do not have to sell and will not want to unless they make a healthy profit.  You can only beat them up so much before they decide they’ll wait and try again when rates are lower.  Also, understand that well-priced and desirable homes are still going to multiple offers, we recently received eight offers on a listing priced slightly below comps.

As always, understand that your situation is unique and that there is no one-size-fits-all approach to real estate.  The market trends we discussed in this update are representative of our entire market and may not be valid in the particular neighborhood where you wish to buy or sell a home.  They also don’t take into account personal considerations – some folks would rather own their home even if it’s more expensive every month.  If you have questions, we would love nothing more than to schedule a call or in-person appointment to discuss the market and how you can play it to your advantage!