I hope everyone had a fantastic Christmas and New Years and are ready to kick 2021 off! Today we are taking a look back at the December home sale numbers to see what home buyers, sellers, and investors should know about the Huntsville Housing Market.
The bottom line up front is that we are in an even stronger sellers market than we have been these past few months. The number of sales is still being constrained by the lack of inventory and that inventory is continuing to decrease. We are seeing a normal seasonal slow down on the rate of new listings. Christmas definitely slowed down new listings and the supply has been made even tighter. We expect there to be a significant increase in listings in January, but the indicators are that the demand will increase with it, so I expect prices to continue to increase.
Supply of Homes
Measuring the supply of homes on the market is pretty straight forward. First we look at the count of homes on the market.
At the end of December there were 706 homes on the market across Madison County according to the data provided on MarketStats (provided by HAAR and Valley MLS) this is the lowest number in the past 3 years. The active listings are down 12.1% from last month and 33.7% from last year. Looking back to 2001 from data from The Alabama Center for Real Estate there are has not been inventory this low in the last 20 years.
The next thing to look at is the rate of new listings for homes.
According the MarketStats we had 582 new listings in December across Madison County. Which is an 18.6% decrease from last month and a 22.8% increase since last year. This is actually a little more than I expected from the past trends. I mentioned on last month’s blog that I expected around 550 listing based on past years trends so it looks like the increasing price is attracting sellers to the market. The decrease in the number of new listings this year from November to December was proportionately smaller than the past few years. Which is great since we have had such little inventory. Looking back at the the past few years the increase from December to January has ranged from 26.6% to 36.9% so there is typically a large increase in listing activity in January. I am going to project in the middle of that and say I expect about 750 new listings in January up from 720 last year.
When we look at the daily new listings, we see that the rate of new listings stayed pretty steady through the first third of December with the 28 day moving average staying in the 21-22 range. Then we saw a decreasing in listing activity from the 11th through 28th when we started to see an increase in activity. This makes a lot of sense to me I get that sellers do not really want to list their home for sale in the week before Christmas. I was surprised it did not slow down more. The 7 day moving average bottomed out at 9.7 and I would have thought it would get lower than that. So the absolute bottom week of the year still had 68 new listings. I expect that the listings will see a quick rise and that towards the end of the month it will be around 25 new listings per day.
Demand is more difficult to measure as there are not perfect forward looking metrics to show what we expect demand to look like and some of our metrics are really looking back 45-60 days so not exactly real-time data. We will look at how many sales closed this past month, how many homes went under contract last month, and the time on market for those sales. These each give us a picture of demand in the market over the last month. They are not perfect metrics but they are useful.
Looking at the past three years of closed sales we are seeing an increased volume this year and that trend continues through December with 788 closings. This is a 20.7% increase from last year and a 15.8% increase from last month. There has been an increase in closed sales in 3 of the past 4 Decembers over November, but this year’s increase is the highest of the past 4 years which is an indicator of increasing demand over previous years that is more than just the seasonal fluctuation.
Pending Sales is a good metric for looking at demand as it is closer to what is happening today, but around 1/7 of houses that go under contract do not close so there are chances these fall through. Looking at the past three years we see there is a distinct seasonality to the trend but it is also increasing. There were 577 pending sales in December (very close to my projection of 580 last month) this is an 10.4% decrease from last month, but a 18.2% increase from last year. The decrease since last month and the increase last year is consistent with the seasonal slowdown but overall increase in market volume. Over the last 3 months there has been a year over year growth or 7, 13, and 18% respectively. So taking an average of 13% YoY growth, we would expect approximately 780 pendings in January, but with the expectation that 750 homes will be listed one of those is likely to have to give. My intuition says the listings will be a little higher than projected and the pendings will be a little lower to be very close to the same as the number of new listings. I will be watching it closely.
Looking at the daily pending metrics, there was a steady decrease in the 28 day moving average for all of December. The shorter term moving averages have some increased volatility and they fell for the first part of the month then increased a bit just before the holidays and then fell during the holidays and rebounded the week after Christmas. This makes sense as there is a lag from when a house is listed to when it goes under contract, so the listing slow down during Thanksgiving week caused the first week or so of December to have fewer pendings and the increase the week after Thanksgiving led to an increase in pendings the following week.
Another thing for us to discuss when looking at demand is the mortgage interest rate. Above is the Freddie Mac Primary Mortgage Market Survey. This survey has been kept since 1971 and each week they gather data to track the average commitment rate and fees for a primary mortgage (Check out the survey for more details and definitions), The trend shows us that interest rates continued to reach record lows throughout December and once again we are sitting at the new lowest interest rates in history. This definitely impacts demand as buyers are willing to pay a higher price when they know that the interest rates will keep their monthly payments where they are comfortable and keeps the long term cost of the home down. So this indicates we should expect an increase in demand. Even though rates are down about 1% in the past 12 months prices have risen as well so the total buying power (what you can buy for the same payment) has remained about steady in the past 12 months.
One more metric for demand is to look at the number of days that a listing is staying on the market. I prefer to look at the median as a single data point does not move the metric as much making less noisy. The trend here is a steady decrease in the time on market for the past 3 years. It rose up to 4 days in December so we are not at the all time low like we have been for the past several months, but it is still very low. I anticiapte it to stay that way.
Now we are combing the supply and demand metrics to see what the market looks like. First we will look at the Months of Supply or the absorption rate. It is a ration of the current inventory over last months rate of closings and answering “How many months until we run out of inventory if we do not get any more?” Currently we are at an all time low of 1.0 months of inventory. For a baseline, 5-6 months is considered a balanced buyers and sellers market, so we are in a very strong seller’s market.
Next we look at a daily “Delta Chart” that shows how many new listings minus how many homes went pending each day. The moving averages give an idea on if we are increasing or decreasing how many listings we have available on each day due to sales. In early December there was an increase in listings and then the change was pretty steady with an average increase of 3-4 per day until the last couple days of the month when it dropped quickly. This is consistent with what we have previously discussed as there was some lag during the holidays and it appears buyers are catching up on purchasing the inventory after Christmas.
Finally we look at the price trend. This is the monthly median sales price since January 2017. The median price in December was $259,900 this is the first increase since August in this metric with a 3.9% increase over last month and a 16.7% increase from last year. The 4 month pause at $250,000 was driven by that round number that causes more homes to sell at that price. This increase is above that was expected. Nothing in these numbers shows a decrease in demand and I expect the supply to increase as is seasonally typical. So I expect prices to continue to rise.
For Buyers: The mortgage rates are very attractive right now among the lowest in history, so it is nice to be able to get in to a home with a low interest rate. Prices however are 16.7 % higher than they were even a year ago. The question “Is it a good time to buy?” is always a challenging one to answer as my crystal ball is foggy. The bullish case is that North Alabama’s economic indicators such as employment, foreclosures, average income, etc. all point towards a healthy local economy. The outlooks for job growth are very good and do not appear to be significantly impacted by the pandemic, so that would say that prices should continue to increase with the local economy. The bearish case is that prices have increased already and are due for a correction and that economic indicators are looking backwards and there is no sure thing going forward. I personally lean more towards the bull case, but you need to be comfortable with the local economy before you decide if now is the time for you to buy. This is a competitive market to buy in so if you decide that now is a good time for your family then you should go in ready to be patient and aggressive. Patient in how you wait for the right house to come around and aggressive in that there are frequently multiple offers and being aggressive in how much you offer and how seller-friendly the terms you offer are. Aggressive offers will definitely help you get the house you want. One of the best things you can do to prepare to purchase is to save some more money. The more cash you have the more flexibility you will have during the negotiation process. I expect an average of 25 homes to go on the market each day in January so there is inventory arriving I want you to be ready to take advantage.
For Sellers: It is a fantastic time to sell. Prices have come up quickly and if you are looking to sell there has never been a time where you will have more leverage in negotiations or less competition for buyer’s attention. There is not much more to say. There are lots of buyers and few sellers, so now is a great time to get top dollar for your house and to sell quickly.
For Investors: There is a good deal of competition for investable properties. Homes in good condition that rent well go very quickly, so be aggressive and know what you are looking for. The best opportunities are probably in flipping to retail buyers or in “buy, renovate, and rent long term” deals. The extra work required for these decreases the competition a bit so there are opportunities out there. There is an increasing number of out of town investors looking at our market which indicates it is an attractive market.
If you have any questions or want to get started buying or selling give me a call or shoot me a text at (256) 617-3975. I would love to help!