Today I wanted to do a Huntsville market update. I’ll start out with the bottom line up front. The market is still supply constrained. There was been a dip in listings throughout April so the volume of transactions has been on a downward trend. However the number of pending sales is still up from last April, prices are increasing, days on market is still very low. So we are still in a strong seller’s market, It will be interesting to see what the change to “Safer at Home” will do to the real estate market. The market needs more supply and sellers are in a great position to list. Let’s look at the numbers!
Real quick, I am excited to announce that next week I will start back on Walkthrough Wednesday! It is a weekly show that I do on my Instagram (@brandon_k_taylor – would love for you to follow me) where I walk through two houses that are on the Huntsville market and share my thoughts from both the buyers and sellers perspective. I do polls to get the audience’s thoughts and opinions on the houses as well. It is a lot of fun! I haven’t done it since early March and I am excited to get back on it. I put it on my IG Story on Wednesday afternoon some time and it is available for 24 hours. I share in on IGTV the next day, but hearing you input during through the story is my favorite part so I hope you will check that out.
The daily supply trend can be best looked at by looking at the number of daily new listings. The chart shows that metric along with 7, 14, and 28 day moving averages. The trend for listings made a distinct downward change in early April. There was a gradual increase from April 11-21 and there has been a downward trend for the last week or so with a spike in listings on the April 30 and May first. The spike was largely driven by new construction listings as several builders tend to make new inventory available on the last or first day of the month. With Stay at Home order it is understandable that people would not really want people looking at their home while they are supposed to be quarantining there. I think the change to the Safer at Home order and as we “open back up” there will be increases in the number of listings. I am not sure of how abrupt it will be or the timelines that sellers will be comfortable with. This will be interesting to watch going forward.
Taking a step back to look at how this month compares over the past three years, we can see that there is a definite step back from the spike we saw in March, but it is still flat when compared to last year (834 vs 836). So considering our situation that is interesting to note that we are still getting a high number of listings.
Demand is a little harder to measure directly so we look at a couple of proxy measurements the number of homes that change to pending each day and the days on market (DOM) for those homes.
Looking at how many homes went pending each day gives us an idea of demand. It does not measure how many people are willing to buy a house, but it does measure how many people got a contract on one each day. The trend here matches up very well with the trend of the new listings. The rises and falls are similar in timing and scale. This suggests that there is ample demand for the amount of supply that is on the market and that the supply is the constraint on the volume of sales. There is not a matching spike with the supply increase but as we will discuss in the delta chart below it looks like that spike in inventory is showing an increase in pendings pointing to an increase in demand.
Again we take a step back and compare this past month to last year and the previous years and we have an increase in the number of pending homes vs both last month (+0.65%) and last year (+2.3%).
The days on market metric is just that it measures how long the average home that went under contract was on the market. When the time decreases it shows an increased demand in the market. The metric does have some things to be aware of as days with a smaller number of pending deals or if one data point is particularly anomalous (maybe a builder’s model home that has been on the market for three years finally sells when the neighborhood is sold out) then the average can change when there is not really a change in the market. This makes it where spikes are not particularly meaningful but movement in the DMA is more telling. I think the 28 DMA is probably the best metric to focus on as the smaller duration averages show more volatility so it is difficult to discern a trend. The 28- day decreased for most of the month but in the last 2 weeks it has shown an increasing trend. This suggests that inventory is lasting a little bit longer which may indicate a sight decrease in demand.
Next we want to look at the number of closed sales in April and how this fits the longer term trends. The number of closed sales is down both MoM (-3.2%) and YoY (-13.8%). With the high number of listings and the strong number of pendings, I do not have a clear explanation for this decrease through the metrics. I am guessing that some transactions are having increased escrow periods because of COVID. I know I had a couple of transactions that took longer to close than expected because of the impacts to both lenders and buyers.
The downward trend on the average days on market shows that there is still not sufficient supply for the demand.
Supply and Demand Balance
The last thing to look at is how supply and demand is in comparison to each other. The daily difference in new listings and homes under contract is one thing we can look at and the absorption rate or months of inventory is the longer term metric we track.
The difference in the daily listings and pendings give us an idea of if we are out of balance one way or the other. In this chart positive numbers mean we have a net gain in listings and negative number mean we have a net loss in listings.
In late April the 7 DMA was in negative territory. This means that the supply of homes is actually decreasing and not just changing slowly. This is atypical for this time of year as there is normally a spike in listings in late March and throughout April. April 30 and May 1 gave us a surge of listing activity and the two days after that there was a surge in pendings it is not quite as pronounced, but it makes sense that it would take some time for the spike in listings to be placed under contract.
Looking at the trend for the absorption rate, which is a ratio of how many homes we sold last month to our current supply of homes, we can see that there is still a downward trend. This metric will not really show the impact of COVID for another month or so as there is a good bit of lag (30-60 days) from when a house found to when the transaction is closed. So there will be up to a 60 day lag in the metrics that use the count of closings. But we still see that the inventory will only last for 6 weeks or so at the current rate.
All of this points us to the price trend. The median sales price is still increasing at a steady rate. The MoM growth is 1% and the year over year growth is 14.8%.
So What Should YOU Do?
The conronavirus has definitely had an impact on the real estate market. These numbers tell us that the market is still a strong seller’s market. If the disease has directly impacted you or you are at a high risk then you should follow the appropriate medical advice (not your REALTORS, lol), but if your job has been stable through this and you are ready to buy then you should proceed with how we approach a seller’s market.
For seller’s that means now is a great time to list and be a little bit greedy with your list price (especially if you can make it really pretty). We will be careful with how we do showings and open houses, but we can get your house sold quickly for top dollar as the buyers are out there looking.
Buyers, go out there aggressively. When you find something you want act quickly. With the Safer at Home order, I am still recommending that clients only see houses that you are serious about writing an offer on. It is not a time for sight seeing or a way to get out of the house (especially if it is currently occupied). Buyers should also have reasonable expectations as they do not have leverage with the limited inventory so do not mess around with offers.
A quick story, I had an offer on a listing the day it came on the market and the offer was about 5% below the list price in total concession (both closing costs and price). My seller countered at like 2% below the list price. The buyer came back at 4% below list price. My seller decided to sleep on it. The next day we got an offer for 2% over the list price and after the best and final offers were received the first buyer was now offering more then the counter he had received the day before and he wound up losing the house. If the first buyer would not have messed around over ~2% then they would’ve had the home under contract that they wanted. In this market, buyers are generally going to pay fair market value for a house and it is an appreciating market so it should not exactly meet the comps from 6 months ago, so do not go out there looking for a steal.
Investors, there are always opportunities out there for properties that need significant work. and right now with the low inventory it is unlikely you will be stuck with a completed home for long as there is a shortage of supply if you are flipping it, so if you can find a house to flip then there is no time like the present. Also, there is a good deal of out of state and international money continuing to enter our market so I expect that prices will climb in neighborhoods that have a high percentage of renters with an increase in demand. The word about Huntsville weathering the storm of the Great Recession is out and people around the world are looking for places to put their capital with the downturn in the markets. If you have property you are looking to liquidate it is a good time to do so.
Wow that was long thank you for checking this out and if you made it this far you deserve a small prize so get yourself a cookie 😉