Birmingham Area MLS* Monthly Observations for October 2008
The poor performance of world stock markets has negatively impacted the local Real Estate market and consumer confidence is at an all time low.
The good news is that the absolute inventory of houses available for sale has been trending down for several months, which may eventually bring demand into balance with supply. Unfortunately, the decline is due as much to people withdrawing houses from the market (“failures”) as to sales. In spite of the absolute decrease in the number of houses on the market, the 12 month absorption rate did not change materially.
Total dollar sales decreased 36% to $158,022,058 in October from $246,306,026 in September*. October is historically “down” from September so some decline was expected. (page A-4). However, the month to month percentage decline was the largest we have in the data which goes back to 1999. The next largest month to month declines were 28% in February ’06 and October “01. The average September to October decline over the last 9 years (excluding this one) was 7%.
For several months we have been reporting that we were beginning to see “normal” sales fluctuations, as opposed to continued deterioration. The recent events in the capital markets and these current results in our local market throw that into question. See the Caution Rough Times Ahead on the web. Just last month I said:
“I’d be surprised to see sales move outside the 2002-2004 range but, the current extreme disruption in the capital markets and the effect on consumer budgets and psyches will have a decidedly negative effect on the outlook.”
That has proven to be true. Unfortunately, we may be looking at further deterioration just as the local real estate market was beginning to stabilize. On a trend line basis, this months sales went decisively below the 2002 levels while we had previously been tracking the 2003 levels (See page A 4).
Sections C and D of the main report present active and absorption data historically by Price Range and by Area. There is a large disparity in performance and trends in different Price Ranges and Areas. For instance used houses over $900,000 had 23 new listings against 7 sales. Please look at sections C and D.
Absorption rates for new homes improved to 8.1 months from 9.0 months of inventory last month, slightly better than 8.3 last year at this time (Section E page 3). The last several months have seen large retroactive changes in available inventory. The “failure rate” (expired listings), has been higher, and sellers and agents have not been renewing expired listings promptly. For example, we reported 8 months of new house inventory for last month which has been adjusted to 9 this month due to these retroactive changes. Don’t read too much into lower inventory figures and lower absorption as the discouraged sellers do generally renew listings, (many retroactively) just not quickly. New house inventories are excessive at over a year concentrated in the higher price ranges (above $500,000). Under this price threshold, inventories are fairly reasonable, in the 6 to 9 month range. Bigger developers in lower price ranges are almost sold out (0 to 5 months of supply) with remaining inventory is held in the smaller developments. Builders have been steadily reducing inventory since October 2007 which was the peak.
Total unit sales deteriorated by 30% to 999 in October from 1,422 in September a decline of 423 units. New sales deteriorated to 164 homes this month from 340 in September, a decline of 176 units, this decline affected all price ranges. Used sales declined to 835 homes in October from 1,080 last month, a decline of 245 (sect E page 3).
The number of months of supply “absorption” for used homes has been generally increasing over the last 9 months with a slight drop in October to 11 months of inventory. This is a 1.1 month increase from last year’s level at this time (See section E page 3). With the retroactive changes referred to above, and rounding, it’s fair to say that we are now at a 12 month level of inventory for used houses. Overall, new listings for new houses were down, but the sales level dropped faster, (see the chart on section B page 1). Over $700,000 we now see inventory for used houses at over 2 years (approaching 3 years). Birmingham area builders are doing a better job of reacting to the market, and constraining new construction supply, but consumers who are the sellers of existing houses are having a harder time as the supply of used homes for sale is climbing. The build up of existing housing supply will continue to impact the new housing market. The number of new homes for sale peaked at 3,993 in October of last year, and now sits at 2,570, having declined in each month since the peak. We believe that there is an increasing amount of “shadow inventory” in both the new and used market places ie; houses held off the market for various reasons, but that really are for sale. It seems to me that the For Sale by Owners (FSBO’s) are on the rise also, but that many will revert to realtor listings as they discover just how tough the market is.
Active New listings decreased to 2,570 in October from 2,991 in September, a decline of 421 units (E-3). There were 164 new houses sold in the month, so the rest of the reduction is partially due to the higher failure rate, (the number of houses whose listings have expired or canceled without a sale), partially offset by a lower number of new listings. Active Used Listings June set a record of 12,509 used homes were for sale, and October now shows as 11,166 but that will probably show as a larger number next month as explained above (page E-3).
Birmingham area Average Days on Market for new houses was roughly unchanged to 139 days as compared to 140 days last month. Used houses were roughly unchanged at 105 days compared to 100 days in September (sec A page 18). Birmingham area Average sales prices for sold new homes increased to $241,695 from $236,177 (Chart sect A p2). Average sales prices for sold used homes decreased to $141,777 from $153,130 (Chart sect A p2). Note that the twelve month moving average line on all categories of houses, new, used, and total are all now showing a downward slope indicating that sellers are at last showing flexibility on pricing.
TWB 11/15/08 *Caution!: All references to last month (and earlier) numbers show revisions. Each month we pick up late entries (i.e. ones made after our prior publication date) to the MLS system.