Alabama’s residential market is substantially impacted by the amount of homes listed for sale at any given moment. It impacts months of supply, median sales price, and DOM (Days On Market). These factors are all heavily influenced by the number of listings and are important metric tools to determine if it is a buyer’s or seller’s market.
In the lead up to the Great Recession, for example, listings were abundant and seller’s competed with one another for a limited number of buyers. Not surprisingly, this was one factor that lead to declining home values from 2007 to 2011 when the statewide median sales price declined 8.5%. Alabama’s residential market today is quite different, mostly because listing levels have been tight for several years now, while total sales are at record levels. According to the Center’s most recent Statewide Annual Report, the average number of homes on the market peaked in 2008 with approximately 41,200 listings. From that peak, listings consistently trended downwards with approximately 23,600 listings in 2018, a decline of 42.8% from peak levels and a 9.4% decrease from the previous year. That slow yet important shift in the number of homes on the market has many implications, two of which are homes selling faster and at higher prices.
One of the best indicators for residential markets is the inventory to sales ratio, also referred to as months of supply (MOS). Inventory to sales ratio is calculated by dividing the total number of units listed on the market for a specific term and dividing that by the number of closed transactions from that same term. The statewide MOS for September 2019 is 4.0 months, down 16.4% from one year ago. For comparison, the inventory to sales ratio in October 2010 was 16.1 months, meaning that buyers were relatively scarce (2,460 closed transactions statewide) when compared to the amount for sale at the time (39,721 listings). Months of supply and median sales price typically have an inverse relationship, reacting to changes in supply and demand. This is one reason why markets with lower MOS generally have higher levels of price appreciation. Since 2010, statewide MOS has slowly dwindled to where it is today (4.0 months in October 2019), and in that same time period median sales price has increased an average of 2% per year.
Nationwide, available units for sale are starting to tighten as listings declined 4.3% Y/Y in October, extending the streak of inventory declines at the national level to 5 months.
Alabama’s residential markets, however, are impacted by significantly larger shortages as listings statewide declined 10.7% Y/Y in October. Only one of Alabama’s 14* metropolitan areas witnessed an increase in listings: Auburn-Opelika (9.5%). Listing gains in this area is driven in part by a strong new construction market. During October, new construction represented 29.3% of all residential sales in Auburn-Opelika.
October’s drop in listings extended the streak of Y/Y inventory declines to 56 months, a trend that began in March 2015. North Alabama is feeling the greatest burden of listing shortages, dropping 27% Y/Y in Huntsville, 31% in Athens, and 21.2% in Decatur. Strong economic output partnered with steady population and job growth have increased demand for housing in the area. The new Mazda Toyota factory located in Limestone County will bring over 4,000 new jobs to the area, further extending this trend. Other markets seeing significant declines in total listings in October include Montgomery (down 8.5%), Dothan (down 21.4%), and Phenix City (down 14.2%). Listings in the Mobile area are also trending downwards, as October’s 12.4% decline extends the area’s streak of year-over-year listing declines to 72 consecutive months. This is the longest streak of such declines in the state, a trend that began in November 2013.
The following chart ranks Alabama’s metropolitan areas based on their total months of supply during October 2019. Strong seller’s markets include Huntsville (1.7 MOS), Athens (2.3), Decatur (2.4), Mobile (3.4), Phenix City Area (3.6), Auburn-Opelika (3.9), Florence-Muscle Shoals (3.9), and Tuscaloosa (3.9). Given that 6.0 months of supply is generally considered the equilibrium point where buyers and sellers have roughly equal bargaining power, 13 of Alabama’s 13 metro areas are currently “seller’s markets,” with the Dothan area at 6.0 months of supply. Stay tuned to ACRE’s exploRE page for more insights.