Inventory Trends in Alabama’s Residential Markets
Alabama’s residential market is substantially impacted by inventory, the amount of homes listed for sale at any given moment. Inventory* levels impact months of supply, median sales price, and DOM (Days On Market). These factors are all heavily influenced by inventory levels and are important metric tools to determine if it is a buyer’s or seller’s market. In the lead up to the Great Recession, for example, inventory was abundant and seller’s competed with one another for a limited number of buyers. Not surprisingly, this was one factor that lead to declining home values from 2007 to 2011 when the statewide median sales price declined 8.5%. Alabama’s residential market today is quite different, mostly because inventory levels have been tight for several years now, while total sales are at record levels. According to the Center’s most recent Statewide Annual Report, the average number of homes on the market peaked in 2008 with approximately 41,200 listings. From that peak, inventory consistently trended downwards with approximately 23,600 listings in 2018, a decline of 42.8% from peak levels and a 9.4% decrease from the previous year. That slow yet important shift in the number of homes on the market has many implications, two of which are homes selling faster and at higher prices.
One of the best indicators for residential markets is the inventory to sales ratio, also referred to as months of supply (MOS). Inventory to sales ratio is calculated by dividing the total number of units listed on the market for a specific term and dividing that by the number of closed transactions from that same term. The statewide MOS for the month of May 2019 is 3.4 months. This number, compared year-over-year (y/y) is 12.8% lower than it was for the same month in the previous year. The inventory to sales ratio in May of 2009 was 11.9 months, meaning that buyers were relatively scarce (3,315 transactions statewide) when compared to the inventory at the time (39,468 listings). Months of supply and median sales price typically have an inverse relationship, acting on the basis of supply and demand. This is why markets with much lower MOS have significantly levels of price appreciation. Since 2011, MOS has slowly dwindled to where it is today (3.4 months), and in that same time period median sales price has increased 4.5% per year.
After steadily declining for several years, inventory nationwide is now trending back up, increasing 2.7% year-over-year May. Only three of Alabama’s 14** metropolitan areas witnessed y/y inventory gains during the same period: Auburn-Opelika (23.5%), Daphne-Fairhope-Foley (1.2%), and Tuscaloosa (2.1%). Inventory gains in these areas are driven in part by strong new construction markets. During May, new construction represented 23% of all residential sales in Auburn-Opelika, 18.9% in Daphne-Fairhope-Foley, and 10.8% in Tuscaloosa.
As mentioned earlier, Alabama’s inventory is steadily trending downwards, declining 11.6% y/y in May. This extends the year-over-year statewide inventory decline to 51 months, a trend that began in March 2015. North Alabama is feeling the greatest burden of inventory shortages, dropping 26% y/y in Huntsville, 21% in Athens, and 29% in Decatur. Strong economic output partnered with steady population and job growth have increased demand for housing in the area. The new Mazda Toyota factory located in Limestone County will bring over 4,000 new jobs to the area, further extending this trend. Other markets seeing significant inventory declines in May include Montgomery (down 29.4%), Dothan (down 27.3%), and Phenix City (down 16.2%). While inventory was down only 3.5% y/y in May, Mobile has the state’s longest streak of year-over-year inventory declines (67 consecutive months), a trend that began in November 2013.
The following chart ranks Alabama’s metropolitan areas based on their total months of supply during May 2019. Strong sellers markets include Huntsville (1.7 MOS), Athens (1.9), Decatur (2.2) Auburn-Opelika (2.7), and Tuscaloosa (2.9). Given that 6.0 months of supply is generally considered the equilibrium point where buyers and sellers have roughly equal bargaining power, all of Alabama’s metro areas are currently “seller’s markets.” Stay tuned to ACRE’s exploRE page to see if inventory levels continue to trend downwards.