Tag Archives: Alabama Center for Real Estate

ABRE Analytics: 2013 Forecast for Alabama Residential Sales

Last year, ABRE Analytics, a collaborative research partnership consisting of the Alabama Center for Real Estate (ACRE) and Tom Brander, began studying the correlation between unemployment rates and future real estate sales projections in selected markets across the State of Alabama.
Ala - 2012 Act vs Proj 2013.jpgView full sizeABRE Analytics: 2013 residential sales projections for selected real estate markets. All rights reserved.
With the release of the metro unemployment data for January 2013, ABRE Analytics is pleased to present our 2nd annual forecast stemming from this methodology and related commentary.
Area Full year 2011 Actual Full year 2012 Proj % chg from 2011 2012 Actual Err % Diff to proj Act 2012 % Diff to 2011 Forecast 2013 2013 F’cast to 2012 Act Method Unemp or last Q
Statewide 36965 41,992 14% 39280 -6% 6% 41,799 6% Last Q
Huntsville 8610 9,050 5% 9189 2% 7% 9,835 7% Unemp
Birmingham 12468 14,550 17% 13514 -7% 8% 14,571 8% Last Q
Auburn 1132 1,138 0% 1233 8% 9% 1,338 8% Last Q
Tuscaloosa 1743 1,826 5% 1735 -5% 0% 1,935 12% Unemp
Montgomery 2774 3,679 33% 3111 -15% 12% 3,342 7% Last Q

Note: the error bars are at +/- 10%

The above table summarizes last year’s results and our expectations for 2013. These predictions assume no “major events”. As expected with any new trends model in its inaugural trial run, the 2012 predictions were mixed. Alabama residential saleswere up 5.9 percent in 2012.

In Huntsville, the forecast was within 2% of the full year 2012 results. In the aggregate, the results pointed in the right direction right, but with some error so this led the team to explore some alternative approaches for this year’s predictions to improve accuracy. In the markets with the greatest error we revised our methods to use the last quarter of 2012 sales via straight line linear regression instead of the unemployment rate. This method appears to be more accurate in most markets historically and hopefully going forward.

With these adjustments, above is the overview of what ABRE Analytics think might happen in 2013. As for the projection of a 12% increase for Tuscaloosa that is out of line with the other markets, ABRE’s opinion is that this may be a little too optimistic, but we have yet to figure out a consistent method to arrive at a better projection for Tuscaloosa in 2013. Of course, the local market’s near-term response to the tornado of April 27, 2011 certainly has a role with the difficulty in identifying a projection that could be presented with more confidence. Last year we experienced a similar issue with Montgomery, which prompted us to develop the alternative methodology of using last quarter sales for predictions.

The method ABRE used for 2012 was based entirely on the January unemployment rate for a market area. The assumption was that the January unemployment rate eliminated the effect of holiday temporary work and would reflect the mood of the populace towards buying and selling a new home in the upcoming year. A standard linear regression line yielded a better than 80% correlation since 2004 in all areas. The standard error however is somewhat high. This method also has the benefit of using two longer term trends, unemployment and home sales, and only at a single point per year, which eliminates a lot of “noise” in both series.

The seasonal regularity of sales is such that if you know the total sales for a year, dividing the total by the average proportion of the yearly sales attributable to a month has shown to be remarkably stable. Exceptions to the regularity do occur, such as fiscal cliff drama and the tax credit for first time home buyers in 2009. ABRE eliminates this data when calculating the monthly spreads.

ABRE originally chose unemployment data as it is one of the more timely pieces of data released by the government, as well as being released by geographies that generally correspond to the reported real estate market areas. Other data from various government agencies are released so late as to not be timely enough for meaningful projections.

So, what ABRE presents is our best estimate of next year’s sales which specifically excludes the possible impact of unpredictable governmental action or inaction, although even this seems to be having less impact as both the populace and markets begin to ignore political histrionics. For what it is worth, ABRE did test everyone’s favorite housing predictor, interest rates, and could not find any useful correlation.

In each case ABRE experiments with prior years data to see how well the prediction methodology would have worked. We tried using the last quarter sales of the prior year to “regress” against the full year sales of the projected (next) year. This is based on the same premise that recent data may be indicative of future results.

In each case, except Huntsville and Tuscaloosa, this methodology (last quarter of the year to the following year) resulted in greater historical accuracy in predicting and considerably better correlation numbers. We did exclude 2010 from the analysis since the last quarter of 2009 had abnormally low sales, (although the full year sales were as expected), due to the 1st time homeowners tax credit that pulled sales into earlier quarters and depressed the year end.

Complete spreadsheets with all data are available as public Google spreadsheets, which also include month by month projections, at http://goo.gl/jtJGW. ABRE presents these projections as a “work in progress” and as a tool for assessing how well current sales are performing against some level of “informed” expectation. You should not rely on them, but nonetheless ABRE hopes the projections are found useful. ABRE welcomes comments and suggestions for improvement.

About ABRE Analytics: Strategic collaboration is one of the keys to accelerating the flow of insights in the 21st century. The Alabama Center for Real Estate (ACRE) and Tom Brander has been successfully collaborating since 2009. The flow of ideas stemming from this relationship have led to solutions to better serve the Alabama real estate industry and consumers. ABRE (ACRE/Brander Real Estate) Analytics is designed to foster future creative thinking while also providing hands-on experience for student interns of ACRE.

About ACRE: ACRE’s core purpose is to advance the profession of real estate in Alabama by providing relevant resources in the areas of research, education and outreach. The Center, founded in 1996 by the Alabama Association of REALTORS, the Alabama Real Estate Commission and the Office of the Dean at UA’SCulverhouse College of Commerce, also acts as an industry liaison for the benefit of business school students pursuing a career in real estate. To learn more, please visit ourwebsite.
About Tom Brander: Tom Brander is a prominent real estate publisher. He produces The Rudulph/Brander Monthly Real Estate Report in the Birmingham, Huntsville and Baldwin County markets. His company, OSWCO, LLC (Open Software Company) is an authorized Google reseller. He has earned the Google apps sales consultant certification and the Google apps deployment certification, from Google. Tom also co-produces the ACRE quarterly Real Estate Sentiment Index and report in conjunction with ACRE. He is a designated ACRE Education Instructor and serves as a member of the ACRE Board of Trustees. To learn more, please visit http://oswco.com.
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Alabama Real Estate Confidence Index, (ARECI): Outlook For the 1st Quarter 0f 2010

Recently, I was humbled to be selected to participate on the inaugural  ACRE Leadership Council. The Council determined the need for a statewide industry confidence index and this was adopted as the Council’s first initiative. As a result of my professional background in real estate analysis, I was honored to be selected by the Council and Grayson Glaze, ACRE Executive Director, to spearhead and work with the Center to conduct and produce its Alabama Real Estate Confidence Index (ARECI). I am excited about the opportunity to work with the UA Real Estate Program and present the results of the first survey.

An excellent article appeared in The Birmingham Business Journal, by Lauren Cooper, referencing the study and material from the recent ACRE conference. If you have not signed up to participate, please do so now by filling out this registration. This is the initial report. We have posted a slide-show version with roughly the same content here (and at the end of this post):

Summary:

Over 637 Real Estate Professionals surveyed during the last quarter of 2009 about expectations for the first quarter of 2010 indicated an overall survey score of 49 indicating a slight negative bias for expectations. The expectations for the nation were 48, while expectations for Alabama were much more positive at 57. The scale ranges from 0-100 with 0 being much worse, 100 being much better, and 50 indicating no change expected.

The group was also positive 57 on the outlook for Real Estate Sales in the 1st quarter.

Inventory is expected to remain much the same at 49.

Pricing at 43 was generally expected to be weak due to the economy and the group expects the worsening of credit availability 40.

Respondents in the North Alabama were most optimistic with a score of 65 for an improved Alabama economy. On the low side the biggest divergence was the expectation for tough credit in the South 38 and pressured pricing in the commercial area at 36, which was the most negative sentiment expressed.

A summary of participants and responses:

Number Nat next Q Ala Next Q Next Q Sales Next Q inv Next Q Price Next Q Credit % of total
Residential 535 49.53 58.83 58.50 50.33 44.39 40.33 83.99%
Commercial 102 42.40 46.57 49.51 41.42 36.52 41.18 16.01%
North 116 51.94 65.52 60.78 54.96 49.78 43.75 18.21%
North_Central 224 46.21 53.13 54.35 46.99 40.63 39.40 35.16%
South_Central 117 47.22 56.20 58.33 49.15 42.09 42.31 18.37%
South 180 49.58 56.39 57.22 47.22 42.64 38.47 28.26%
Total 637 48.39 56.87 57.06 48.90 43.13 40.46


As we can see from the data table, at this time there is quite a bit of unanimity of outlook among different geographic regions, and even between the Commercial and Residential sectors. The Commercial sector has a  more negative outlook than the Residential all fronts, except somewhat surprisingly, for credit availability! While both groups were negative in their outlooks on credit availability the Commercial market participants were marginally less negative.

Since we don’t have history for The ARECI yet, a comparison with the business survey conducted of Alabama business leaders by the University Of Alabama School of Business, known as the Alabama Business Confidence Index, ABCI may be useful. It would be expected that the new Real Estate index would closely parallel the old since the initial values are so close.

The initial value for the ARECI index is 49.1.


Methodology:

Survey respondents answered 8 basic questions regarding their outlook for national and local real estate. The survey was open from 10/7/2009 through 1/12/2010. There were 637 Real Estate professionals who responded from all over the state which represents one of the widest surveys of Real Estate Professionals that we know of. The survey was modeled on the Alabama Business Confidence Index survey conducted Quarterly by the Culverhouse Business School at the University of Alabama and a similar monthly Real Estate survey the Federal Reserve conducts in the Southeast.

The questions:Your expectations for change from the current to the upcoming quarter:

General Real Estate Indicators:
  • Conditions in the Nation
  • Conditions in Alabama

Your expectations for change from the current to the upcoming quarter (as applies to your specific market):

  • Sales
  • Inventory (more=worse)
  • Pricing (lower=worse)
  • Credit Availability

All questions were scored  as:

  • Much worse = 0
  • Worse = 25
  • About the Same = 50
  • Better = 75
  • Much Better = 100

The participants were well dispersed throughout the state.
The regions are defined as (with the overall average for the region):

North: Huntsville-Decatur-Florence  (54.4)

North Central: Birmingham-Tuscaloosa-Anniston (46.7)

South Central: Montgomery-Auburn-Wiregrass-Dothan (49.2)

South: Mobile-Baldwin (48.6)

Residential Overall average : 50.3

Commercial Overall average: 42.9

Questions on method:

Several questioned some aspects of the survey methods, such as, no options for multiple association membership, or specific area as separate region (such as Cullman) or providing for a specific sub specialty (such as brokering rural land).

To administer a survey of this type, answers have to “fit”  into the most meaningful categories for overall analysis. Providing too many options for fairly small exceptions would if anything confuse both survey takers and subsequent analysis.

Multiple MLS members should choose the MLS they do the most with and that would most represent their answers, and similarly for others who asked about this category of question. The chosen methodology will yield valid and easily interpreted  answers. Given the fairly large number of respondents, there should be no distortions.

Other comments:

We received about 500 comments, which is outstanding for a survey of this type.

While it is difficult to fully summarize the comments there was a general feeling of unease and frustration expressed. Not surprisingly, this was directed at the government for unease as to both doing too much, and not enough, or not the right things.  There was a general feeling that many more problems remain to be worked through, specifically foreclosures, both residential and commercial. There was of course a general frustration with lack of credit availability, but a recognition that things cannot and should not return to the prior permissive policies that caused this problem.

Slide show:

ACRE, housed within the UA’s Culverhouse College of Commerce, collects, maintains and analyzes the state’s real estate statistics, and is a trusted resource for Alabama real estate research, forecasting, and professional development that includes hosting our annual Alabama Commercial Real Estate Conference & Expo (www.acreconference.ua.edu). The relationship between the Center and our industry stakeholders is one of the Center’s greatest strengths. Alabama companies and individuals, partner with the Center bringing a wealth of resources and experiences, becoming, in effect, extensions of the Center, a network through which our outreach to the Alabama real estate industry is enhanced and enriched. The Center, established in 1996, proudly acts as an industry liaison for the benefit of our business school students pursuing a career in real estate and is a catalyst for providing interaction with our 900+ real estate alumni. UA’s real estate program began “touching lives” over 75 years ago and has experienced explosive enrollment growth since 2000. To learn more, please visit www.acre.cba.ua.edu.