Atlanta’s once red-hot housing market is suffering a cooldown, as the Georgia city reported the biggest share of home sale cancellations in April of all U.S. metro analyzed by Redfin and sales fell year-over-year for the third consecutive month.

The city’s housing market is “at risk” of experiencing a significant downturn, with price drops so steep that it could feel “very much like a crash,” Norada Real Estate Investment’s analyst Marco Santarelli said.

Why It Matters

Many of the hottest housing markets during the pandemic are now experiencing corrections, with lower demand putting downward pressure on prices. The most glaring examples of this unfolding phenomenon are concentrated in the South, where most remote workers relocated during the health emergency.

In these markets, affordability reached a breaking point during the pandemic after which many locals were priced out of buying homes. The only ones who could afford buying properties were investors and out-of-state buyers—but high prices, elevated mortgage rates and growing economic uncertainty have now discouraged these categories as well, and sales are dropping.

While this could be good news for locals pushed to the sidelines of the market, prices are yet to reflect this changing dynamics in Atlanta—but experts say it might only be a matter of time until they start falling.

What To Know

In April, home sales in Atlanta were down 4.6 percent year-over-year, for a total of 699 homes sold in the city, according to Redfin data. The typical home also spent seven days longer in the market before going under contract than it did a year earlier, for a total of 45 days.

In the same month, the city also reported the highest share of home-purchase agreement cancellations in the country compared to all pending sales, with 20 percent of home-purchase agreements falling through, up from 17.6 percent last year.

According to experts, shrinking demand is due to locals being priced out of the market and investors turning away from Atlanta.

“The collapse in investor demand in the U.S. housing market is alarming. In a market like Atlanta, investors are buying 65 percent fewer homes than they did at the peak of the pandemic,” Nick Gerli, real estate analyst and CEO of Reventure, wrote on X.

“Investors are buying fewer homes because of elevated interest rates, declining rents, and rising insurance costs,” he said, commenting on a Reventure graph showing that investor purchases in Atlanta are now 65 percent lower than their peak in the second quarter of 2021.

Investor sentiment appears to be shifting nationally, not just in Georgia. Gerli noted other cities experiencing a steep decline in investor activity include Jacksonville, Florida (-63 percent), Phoenix, Arizona (-62 percent), and Charlotte, North Carolina (-61 percent).

Despite the ongoing cooldown in demand, prices are still rising in the city. In April, the median sale price of a home in Atlanta was $440,000, up 5.4 percent from a year earlier and up more than 80 percent from April 2020. Of those homes that were sold last month, 21 percent went under contract above list price, while 32.7 percent had price drops.

A likely reason behind these price increases is the limited availability of homes in the Atlanta market. While inventory has been rising steadily in the past few months, with April reporting a total of 5,129 homes for sale in the city, up 8.9 percent from the previous month and 40.4 percent from a year earlier, according to Realtor.com, inventory remains below pre-pandemic levels.

But things may change soon. According to Norada Real Estate Investment, Atlanta is the second market most at-risk of price decline this year in the country after Albuquerque, New Mexico.

What People Are Saying

Redfin chief economist Daryl Fairweather previously told Newsweek: “We suspect that since Atlanta has been an investor hotspot in recent years, this could be the impact of investors backing out of deals, which might account for part of this trend.”

Gerli wrote on X: “Not so surprisingly, housing inventory and supply have skyrocketed in the markets where investors are no longer buying. And home values are now dropping in many of these markets on a month-over-month basis.”

Santarelli said in a recent report: “Atlanta attracted massive numbers of new residents during the pandemic thanks to its relative affordability (compared to coastal cities), job market, and quality of life. However, that popularity drove prices up dramatically.”

He added: “The negative state-level data combined with the volatile price trend line for Atlanta in the chart suggests that affordability is now a major challenge for many potential buyers. Plus, Atlanta is a major metro, which often sees more development and potentially faster inventory increases than smaller towns. This combination of stretched affordability and potential inventory growth puts it at risk.”

What Happens Next

According to Gerli, investors’ behavior normally amplifies “whatever the current market trends are.”

He wrote on X: “If there is a bubble, investors will make the bubble bigger, bringing in external capital into a local housing market that should be dependent on local buyers. Meanwhile, in a crash or downturn, investors tend to make the situation worse. Leaving the market in droves before the crash gets worse.”

According to Gerli, markets like Atlanta, where investors have backed off, could soon experience significant price drops. Santarelli expects very much the same to happen, with prices potentially falling by 10 percent, 15 percent, or 20 percent from their peak during the pandemic homebuying frenzy.