Category Archives: Annual comments

Alabama, Birmingham, and Huntsville Real Estate Market in 2012-Forecast

While the Real Estate market adage is “Location, Location, Location” I submit that based on this study that maybe it should be “Jobs, Jobs, Jobs”

Over the years, I have often been asked to predict what will happen in the future in the residential real estate market. I have generally resisted providing answers to this, pointing out that the current data which I provide gives some pretty strong hints.

However, in doing some consulting work I have come across some useful correlative data that holds promise for quantifiable, accurate, projections of future real estate sales.

While it is  important to keep the adage “correlation is not causation” in mind, correlations can be useful and dependable if they pass the “common sense” test.

I have found that for a given area, the Bureau of Labor Statistics Unemployment Statistics can reasonably and reliably predict future sales. This makes sense in that buying homes is not a spur of the moment decision, but rather influenced by consumer future expectation, which is nicely captured and influenced by the unemployment rate.

To date, I have tested this concept in multiple markets with similar results. I expect that additional implementation will show similar predictive capabilities.

Since both the real estate and labor market have large seasonal swings, I chose to use the January unemployment rate to project the entire year’s transaction volume. I then spread the volume over the individual months, based on the historical percentage of sales that a given month has in a year. The percentage sales in a month holds steady in “normal” years. I have currently used 2004-2011 to arrive at the percentage sales per month. I suspect that some inaccuracy comes from including 2010 when we had the really abnormal melt-down followed by the extraordinary tax credit. Rather than continue adjusting numbers, I have chosen to publish these preliminary findings in the hope that others can help with the methodology.

Summarizing the findings:

How Unemployment correlates to Real Estate Sales from 2004-2010:
Correlation rate:
Statewide         80%
Birmingham     83%
Huntsville         73%

I have also tested a few other areas, outside Alabama, with similar results.

Interestingly, when I included years before 2004, correlation rates went down. I suspect that this is due to the way financing changed in 2004. I also suspect that years before 2004 will show strong correlation, and that years post 2004 will continue to show even more correlation just not across the 2004 “divide”. This remains for more research. By the way I attempted to find some correlation based on mortgage interest rates. In short, there was none. There may be some very short term impact from interest rates, but nothing close to the jobs market.

Based on the initial correlations a linear regression can predict sales for 2011, and preliminarily for 2012 (based on the estimated January 2012 unemployment rate) for the same three markets.

Market 2010 (actual) 2011 (proj) 2012 (proj)
Statewide 36,234 37,407 39,429
Birmingham 12,235 12,736 13,430
Huntsville 8,543 8,321 8,507

The statewide totals are via the Alabama Center for Real Estate

The monthly projected results compared to the actuals for 2011for Birmingham are as follows:

2011 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
proj 755 877 1135 1137 1239 1314 1180 1191 1090 933 914
actual 683 773 1072 1022 1106 1255 1237 1224 1145 983 944
%error -10.5 -14.9 -5.9 -11 -12 -4 4 2.7 4.8 5 3
Cumulative error 2.9

As you can see this is quite encouraging. The cumulative error for 2011 projections is under 3% for 2011. I believe that excluding 2010, to calculate the monthly changes, due to the tax credit impact will improve the monthly accuracy.

Why might this be useful?

If the results during the year do not unfold as projected one should be looking for the reasons such as the tax stimulus or similar government action. It is also likely that other impacts and shocks to consumer expectations will cause the market to react in ways that are not accounted for in the projections. One can think of major disasters such as the coastal oil spill and multiple weather events. I have not yet tried to see how the coastal markets can be projected.

Residential Unit Sales and Dollar Sales Sink in 2008-Birmingham

This series of 4 posts contains the remarks I’m making at the annual lunch meeting, January 8, 2009 at the Club for the Greater Birmingham Association of Homebuilders. The main Rudulph/Brander Web site is at http://tomBrander.com. The blog is located directly at https://tbrander.wordpress.com. We offer two free newsletters, Local, and National for which you sign up for and you control. Watch to make sure you get a confirmation message and that it does not get stuck in the spam filter!!. Each month we provide summaries of each of our market areas, Birmingham, Huntsville, and Baldwin County. We occasionally update daily if there is news of import including credit market and policy updates.

Page 1 is located at Http://TomBrander.com pages 3-4 of the presentation are located Here.

Number Of Homes Sold (click for bigger)

Number Of Homes Sold (click for bigger)

Total number of homes sold monthly at the peak (2006-2007), using a 12 month rolling average basis about 1,750 per month in ’06 (Most of the year) dropping to about 1,250 a month today. That is a decline of 29%. However, using  just the peak month, we see about a 66% drop from peak to current (about 2,225 mid ’06 to about 750 today Nov. ’08). This measure is particularly volatile but provides some useful understanding of just how extremely the situation can be portrayed. Used home sales dropped from about 1,250 a month to 750 a 40% drop (12 month basis) and 1,600 to 600 on a peak to trough basis 62% drop. New homes dropped from about 500 to about 275 (12 month basis) a 45% drop and on a peak to trough basis from 612 to 149 in Nov., a 75% reduction. Normal New home sales is about 350 a month.

November 2008 Birmingham Total Sales

November 2008 Birmingham Total Sales

Total dollar sales are worse, with a 12 month average peak of $340,000,000 now at $240,000,000 a 29% reduction. Peak to trough of $450,000,000 to $125,000,000 a 72% reduction overall (now at mid ’04 level). It is a 50% reduction from Nov ’07 levels.

Stacked Months

Stacked Months

Stacking the months to show seasonality we can see that the pattern is quite “broken” now at the 1999 levels.  Earlier this year I was hoping we would hold at the 03-04 levels…now I hope we don’t do below the 1999 levels.

If you need help buying or selling, put these powerful research tools to work for you by contacting Shasta Brander, Realtor. (click for her web site).

Average Prices Drop And So Does The Supply of New Homes

12 month Average sales prices in the Birmingham market are holding fairly well but I’m not sure that is good news. New and Used prices peaked in Dec ’06 at $192,000 but are now at $180,000 about a 6% drop. Used prices peaked in the same time period at $175,000 and now is at $165,000 a 6% drop. New prices peaked in May ’08 at $250,000 and is now at $245,000 a 2% drop. These numbers are based on 12 month moving averages so it is highly likely that the trend will be resulting in steeper drops as we go forward.

Peak to trough prices are much worse. But one should use caution with these figures since they can be very volatile for a host of reasons. Used Home prices, for instance peaked at $215,000 in about May 2007 and now sits at about $150,000 a 30% drop!! A lot of this however has to do with the complete absence of sales in the higher end. New Home prices peaked in November ’06 at $260,000 and now sits at $220,000, a 15% reduction. All of the above calculations use approximate figures from the chart, and approximate time frames rounded.

Birmingham '08 Average Sales Prices

Birmingham '08 Average Sales Prices

Inventory Used houses coming on the market are the “real” competition for new…The normal level of “active listings used to be about 6,000 and is now pushing 12,000, up to 11 Months of supply, and two to three years in the higher price ranges. New Home Active listings are somewhat better. The normal level previously about 2000 (in the ’02-’04 time frame),and now is about 2,488 which is 8-9 months of supply. New inventory peaked at 3,834 in Sept ’07. Total number of Active listings, is down about 11% from last year at this time. Some good news is that the Housing permit numbers for Jefferson County are down 66%, with only 36 issued in November 2008 as compared with 106 in November 2007. This would indicate that the New Home inventory should continue to come down. See the Census bureau link on my blog site.

November 2008 Birmingham Inventory

November 2008 Birmingham Inventory

New Home Market Share Sinks As Existing Home Inventory Piles Up

This Chart shows Total Home dollar sales and New Home Dollar sales for the 12 months ended November of each of the last ten years.

Yearly New and Total Sales

Yearly New and Total Sales

Yearly sales New vs. Used The new market is shrinking as a % of the total market, and should continue to do so until used inventory starts to get back to “normal”.

New as Percent of Total Sales

New as Percent of Total Sales

New sales dollars as a % of total, is down at 31% (annual).

New Home Sales down in all price categories inventory(Active Listings) is going down in absolute numbers, but remaining high in Months of inventory. This reflects the lower number of sales and competition with the Resale market. While months of inventory has generally improved in price categories under $600,000, it has deteriorated in the higher priced categories. (Note the abnormal increase in number of active new homes in the $800,000 to $900,000 range)

New Home Price Distribution & Inventory

New Home Price Distribution & Inventory

Price distribution note two price levels showing real improvement $100,000-$200,000 (in number of active listings, not months of inventory) and $300,000 -$400,000 Mostly impacted by national pull out?? Don’t know. Above $400,000 it is really tough and the Used inventory is quite rough….

Top Builder Sales

Top Builder Sales

Builders Selling 20 or more (last year we used 30) Note higher relative inventory for “none” (Note that this compilation is subject to how well the information about builder names is entered in the MLS system.)

Top Birmingham New Housing Markets

Top Birmingham New Housing Markets

Top markets, Hoover, Bluff park, Riverchase remains top dog (in New Home sales) Note a few green areas showing year over year increases..I would not look for a repeat this year. See my special report on the web on just the Hoover, Bluff Park, Riverchase market.

If you need help buying or selling, put these powerful research tools to work for you by contacting Shasta Brander, Realtor. (click for her web site).

12 Month New Home Sales Off 30% In Hoover/Bluff Park/Riverchase Area 250: November 2008

For at least the past two years this area, which is geographically quite large, has had the largest number of new home sales, 43% more new home sales than the next largest MLS area, which is, the (282) Adger/McCalla/Oxmoor Valley area. For the twelve months ending November 2008 unit sales of new homes were down 30 % as compared with 2007 (432 vs. 620). If you need help buying or selling, put these powerful research tools to work for you by contacting Shasta Brander, Realtor. (click for her web site).

Area 250 Summary Table

Area 250 Summary Table

The table above (click for larger) shows an overview of the area for the month of November 2008. Broken down by price range, the table shows for the current month: Active Used and New houses, Failed (expired, canceled or withdrawn) Pending Sold, and New listings. The next column shows how many houses were sold in the last 12 months. Next, for active listings, the average price, within the price range. Next the average Sold price for those that sold this month. Then, the Days on Market (DOM), for sold houses only and last the Absorption in months of inventory. Absorption is the current inventory divided by the last 12 months sales times 12. This shows the number of months it would take to sell the active houses if the future sales rate remains as it was for the last 12 months.

The total line represents the totals and averages for the entire area.

Area 250 New Subdivision Detail

Area 250 New Subdivision Detail

This second table (click for larger) selects only New homes and those subdivisions that have had 5 or more sales in the last 12 months. All other New homes in the area are in the “Other” subdivision. Looking at the “other” subdivision one can see the averages for the smaller and one off New Home subdivisions and compare how they are doing vs. the larger subdivisions. The “Other” subdivision has the largest number of houses and that the absorption rate is 39 months. In general larger subdivisions are performing better, with the absorption in months of inventory lower. Note that this can be distorted on a “new” subdivision that has not been on the market for a year.

This next section is new for us but quite powerful. It takes all New house activities, (Active, Pending, Failed and Sold) , and picks those subdivisions that have at least 5, and gives details for that subdivision, for the current month only. It also puts all others into a subdivision called “Xother”. But the big difference is that we report on the competing resale/used/existing homes in the same subdivision since we are now seeing an increase in the competition from Existing/Used stock.

Caldwell Crossings

Caldwell Crossings

An example of this is the first subdivision Caldwell Crossing (click for larger) which shows 13 active “Existing” listings at an average price of $311,781 and 5 New at an average of about $400,000. One house sold Last month, a used one for $289,000.

Lake Cyrus

Lake Cyrus

Lake Cyrus (Click for larger) shows a different situation with the Resales being listed at higher prices than the New construction. Both New and Existing had sales last month but at the low end of the price range.

The entire detail is here(pdf): Area 250 detail Nov ‘08 Hoover, Bluff Park, Riverchase

The overall trends can best be seen in this Chart:

Area 250 Chart-Overall

Area 250 Chart-Overall

Birmingham Area MLS Annual Comments 1/13/08

Click on the headline above for the full comments. 

Again this year we were invited to present at the annual dinner meeting of the Birmingham Area Homebuilders   (a great group if you don’t already belong). The following nine pages contain the presentation and notes. Please note that the numbers I presented in this year-end presentation section were generated from MLS data generated on 1/5/2008. The main monthly report was generated from MLS data generated 1/11/2008 so there are small discrepancies reflecting later data entered by agents last week. I have not revised my year end presentation. The differences are not material but  the monthly report has the most current numbers… 

Highlights:Total sales Dollars

’06 $3,850,206,923,                              

 “07 $3,596,855,551 (-6.58%)

New Houses          

’06 $1,502,248,548                               

’07 $$1,295,059,555 (-13.79% )

Market share for  new houses went up steadily from 2001 to 2006 , peaking at 39% of sales and then dropping to $36% of 2007 sales. Presumably due to pressure from increased used house selection availability.December Dollar sales slightly lower than November (normally somewhat higher month to month note that January is usually much lower…’06 $292,143,193’07 $219,517,680 (December to December -24.86%) (see above monthly narrative for updated numbers) Last year dollar sales were very good until about July and August , when the wheels came off… this is about 6 months behind some of the national market.