Editor’s Note: The following article is based upon current Alabama housing market information. ACRE will continue to release updates on the impact of coronavirus on the residential market as we receive new data from across the state. Find ACRE’s coronavirus coverage on exploreACRE.com and LinkedIn.
Below is a quick recap of Alabama’s residential markets in the lead up to the Great Recession (2001-2007) and the six years leading up to the COVID-19 pandemic.
Current price growth, averaging 4.82% per year from 2014-2019, is somewhat ahead of 2001-2007 when it averaged 4.24%. We will gain some insight into the effects of COVID-19 on home sale prices when March 2020 data becomes available around mid-April. Although price gains have been strong in recent years, it is unlikely that we will see the price declines of the Great Recession years. Today is a different market in many ways.
We don’t have a surplus of homes on the market like we did a decade ago. We have a shortage based on 3.9 months of supply at the statewide level in February 2020 (the equilibrium point is 6 months). Alabama’s inventory to sales ratio began to rise in the fourth quarter of 2007, reaching an average of 10.8. Compare that to 4.0 in 2019 and 3.9 in February 2020. The four straight years of price declines from 2008-2011 were largely due to the strong buyer’s market at the time (almost 14 listings per closed sale in 2010).
With today’s seller’s market, it is unlikely that we will see significant price declines in the Spring and Summer months. However, the number of sales, especially existing home sales, is likely to be affected by people staying close to home in response to COVID-19 containment measures. Refinance data from NAR’s pending home sales report shows that ReFi’s were up in February as many homeowners take advantage of lower interest rates. This could also foretell lower existing home sales in the months ahead.
Home affordability has been trending downwards in Alabama in recent years. The Alabama Housing Affordability Index (during Q4 2009-2019) peaked in Q4 2012 at 253, while it was 207 in Q4 2019. Falling interest rates and rising wages have created great conditions for homeownership, but rising home prices in recent years have offset gains in these areas. Also, the current housing inventory (properties listed for sale) is especially tight in the entry level price range.
Regarding new construction, housing starts have trended upwards every year since the trough of 6,648 in 2009, but are nowhere near the peak of 24,875 in 2005. Current levels (15,573 in 2019) are trending upwards thanks to especially strong permit data in the months leading up to the COVID-19 outbreak. Individual houses currently under construction are likely to continue building several reasons. Demand for new units was pent-up prior to COVID19 and will likely shift to the Fall, so builders want to be ready with new inventory. Also, banks can’t just pause construction loans and commitments without a slew of accounting and bank regulatory issues.
The full extent of COVID-19’s impact on residential markets is still unfolding. The March sales numbers will be available around mid-April, giving us some insight as to the initial impact and ACRE will publish information with the new data at that time.