Based on recent permit trends, new construction activity in Alabama is likely to increase in 2020. Permits for new single family homes were up 7.9% year-over-year (Y/Y) in 2019, and all metro areas in the state reported permit gains from 2018. The Huntsville metro area lead the state in 2019 with a total of 3,350 permits issued in 2019, representing an increase of 16.7% from 2018. Even with a population roughly double that of Huntsville, the Birmingham-Hoover metro area was second with 2,914 permits in 2019, up 9.9% from the prior year. The Daphne-Fairhope-Foley metro area was third with 2,158 permits in 2019, up 12.5% Y/Y. Permit activity in this area is driven largely by sustained population growth and a large vacation home market.
The momentum from 2019 continued into January as Alabama’s single family permits increased 20.8% from one year ago. The south region and nation as a whole are also off to a good start with increased permit activity in January: the south region gained 20% Y/Y while the nation gained 21.1% Y/Y (seasonally unadjusted). This is especially good news at the national level as permits were down slightly (-0.5%) in 2019, while the south region posted a slight gain of 2.4% during the same period. The January permit data is significant because it suggests continued housing market strength moving forward. A strong housing market also helps keep the current economic expansion, the longest in our nation’s history, on track for continued growth.
Permit activity is on the rise thanks, in part, to low interest rates. According to Freddie Mac, rates for a 30-year fixed mortgage averaged 3.62% in January 2020, down significantly from 4.46% one year ago. Low unemployment also contributes to increased new construction activity. In Alabama for example, the unemployment rate was at a record low in December 2019 at 2.7%, well below the national average of 3.5%. According to the Labor Department, average hourly wages are rising as they increased 3.1% during January from one year ago. Rising wages give consumers more buying power, especially during a time of strong home price appreciation.
With a growing population base and a strong regional economy, the Huntsville area leads the state in total permits and permit growth. With January’s 33.7% increase in single family permits, the area now has eight consecutive months of year-over-year gains. Additionally, permits have posted year-over-year gains in 21 of the last 22 months.
New construction represented 15.9% of all Alabama home sales in January, and a rise in new construction activity has the potential to provide some inventory (properties listed for sale) relief going forward. Total listings declined 17% year-over-year in January, extending the statewide streak of inventory declines to 59 months.