Today we are taking a look back at the January 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 starting to see the market pick back up after the normal seasonal slow down, the number of listings and the number of pending sales are increasing. We expect the increase to hold steady throughout February and then further increase in March.
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 January there were 559 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 21.15% from last month and 44.9% 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.
Another thing I found very interesting is if you look at the chart broken down by Previously owned vs. New Construction the lines crossed in December and continued to separate in January. The number of available New Construction homes is relatively steady over the past few years the decrease in supply of homes has been almost all based on the decrease in existing homes. I think there will be a lot of new construction purchased this year as the low supply of existing homes is frustrating for buyers and they will take the sure thing that you get with a new build over waiting for the right existing home.
The next thing to look at is the rate of new listings for homes.
According the MarketStats we had 715 new listings in January across Madison County. Which is an 23.1% increase from last month and a 0.7% decrease since last year. This missed my estimate of 750 new listings. I anticipated a growth over last year as that has been the trend but YoY listings are flat for this month. It seemed that the increase in prices was attracting more sellers to the market, but the numbers do not show that for this month. We will watch this to see if it is a trend. Looking back at the the past few years there is generally a small increase in the number of listings in February as compared to January. It has ranged from 0.07% to 10.3% over the past 5 years it has notably been an increase each year. Last year there were 736 listings in February. There is one less day in this years month, so a flat year would really require a ~4% increase in activity with the decrease in inventory I do not see a sharp increase in sellers so I am going to go with float month over month and go with 720 new listings in February.
When we look at the daily new listings, we see that the rate of new listings has a steady increase throughout January. The 28 DMA went from 16 at the beginning of the month and made a steady climb up to 22 by the end of the month. It did not quite make it to my projection of 25 which makes sense as the number of total listings missed my projection. Looking at the weekly rates I checked each Saturday’s 7 DMA so on the 3rd, 10th, 17th, 24th, and 31st they were 15.7, 24.0, 23.4, 17.4, and 24.0. This shows that there was a quick ramp up as the year started and then in the third week of January there was a distinct slow down which lines up with the inauguration. It seems that sellers took a cautious approach and did not list that week at the same rate. The final week was back up to the same rate as the first and second weeks, so it looks like it was a blip on the radar that slowdown of about 7 houses per day less adds up to the miss I had on the overall projection and the miss on the 28 DMA for the month.
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 January with 561 closings. This is a 1.8% increase from last year and a 28.9% decrease from last month. There has been an decrease in closed sales each of the past 4 Januaries compared to December, but this is the largest decrease both as a percentage and in absolute terms. So the direction of the change was expected but the magnitude is larger than expected. It seems that Decembers high number of closings was more of a statistical outlier than this months number so the monthly delta seems less significant than that the year over year number is still up and if you look at it as how many sales over the past 3, 6, or 12 months the volume is still up. The monthly change is something I will continue to watch but overall closed sales still points to an increase in demand.
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 734 pending sales in January this is an 29.2% increase from last month and a 6.1% increase from last year. The increase since last month and last year is consistent with the seasonal increase for January and overall increase in market volume that we have been seeing. We had a miss on our projection of pendings also. This is driven by the lack of available inventory. It is hard for more houses to be put under contract than the number of new ones listed, especially when inventory is very tight. The growth of pendings is going to be driven by how many listings we get. The trend from January toe February is a modest growth or flat, so this year I am going to say we remain flat and have about 735 pendings in February. With that number already being higher than the number of new listings, it would be hard to justify a higher projection.
Looking at the daily pending metrics, there was a steady increase in the 28 day moving average for all of January from 15.0 to 20.1 houses being put under contract per day. There was a spike in listings the first week of the year then the rate of pending decreased the second week of the month and have increased each week since. It is interesting that this does not match up exactly with the rates of new listings. Overall this increase is expected throughout the month and points to strong demand
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). We started January by hitting an all time low of 2.67% APR for a 30 year fixed rate mortgage, 2.16% for the 15 year fixed rate, and just off the low with 2.75% on the 5/1 ARM. There was a slight increase in the second week and then the rates have held steady or slightly decreased. The overall low interest rate environment 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 remained at 4 days in January so we are not at the all time lows, but are very close to them. In practical terms it is going to be hard for it to get much lower than that. Seller’s do not really want to take the first offer they get so it is good strategy for them to wait a few days even if they get good offers on the first day.
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 ratio 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 0.8 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. We started January with the 28 DMA barely above zero and it stayed just above or below that for the first 7 days. The next 9 days the number of listings out paced the number of pendings significantly with the 7 DMA peaking at 6.86 on January 16. After that point the 7 and 14 DMA both decreased but the 28 DMA has had a steady upward trajectory throughout the month.
Finally we look at the price trend. I prefer to watch the median as it is less susceptible to outliers. Since I anticipate an increase in New Construction interest from buyers this year I show the breakdown by New vs Existing as well as the overall median price. I find it interesting that existing homes have appreciated faster than new construction. The median New home is 17.4% more expensive than the median existing home. The median new home price has increase 3.8% and the median existing home price has gone up 23.1%. With lumber prices going up and the demand I have seen first hand for homes this past year I was surprised that the median new home price did not increase more than that. My working theory is that maybe buyers are getting fewer upgrades because of the increase in the base price of building homes or that the increase in lumber has not entirely worked its way through closing on those homes. We will have to see if that changes.
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 15.5% 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. Another option is buying new construction. The prices are rising slower than existing homes so they are relatively getting more attractive. The neighborhoods are often in less convenient locations and the wait time is often in the 9 month range, but you get to choose your own finishes and you do not have to compete with other buyers. 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 24 homes to go on the market each day in February 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!