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Category Archives: Real Estate for Everyone
Demand: Alabama’s new home sales in January slipped 2 units or .9 percent from the same period last year.
Supply: Housing starts have increased 13.0 percent since last January. New construction inventory has also increased 4.0 percent since January 2014.Three of five metro areas experienced increases in inventory levels from last January (Birmingham – up 10%, Mobile – up 7% and Tuscaloosa – up 6%).
Alabama’s metro markets in January reflect 8.4 months of new home supply, up 6 percent from last January’s 8.0 months and up 83 percent from 4.6 months in December.
Pricing: Alabama’s metro market’s median new home sales price in January was $235,510, an increase of 2.1 percent from last January and 5.6 percent from last month.
New Home Pipeline: January statewide housing starts increased by 13.0 percent from January 2014 but slipped 2.0 percent from the prior month. 2014 starts were down 2.0 percent. Housing starts were up 7.8 percent in 2013 and 6.5% in 2012. January statewide building permits were up .5 percent from January 2014 but down 5.6 percent from last month. 2014 permits were down .8 percent. Building permits were up 5.6% in 2013 and 8.4 percent in 2012.
Residential Construction Employment: According to the Alabama Dept. of Industrial Relations, statewide residential construction employment in December increased 1.2 percent (800 jobs) to 68,600 from last month and improved 9.2 percent (+5,800 jobs) from the same month a year ago. (Note: January figures are to be released on 3/17/15).
Local Results: 10 out of the 27 home builder associations (37% – down from 56% in Dec) reported gains in building permits from the prior month while 12 associations (44% – up from 33% in Dec) reported gains in housing starts from last month. Twenty associations (74% – up from 33% in Dec) experienced an increase from their January 2013 housing starts.
Industry Perspective: From David Crowe, NAHB chief economist: “The new year either will see the housing sector break out in a traditional, solid recovery or it will see another mundane nudge forward. It doesn’t take a Ph.D. in economics to know that. Unfortunately, any economist with two hands can list forces for both outcomes. But the scale is heavily tipped toward more growth in single-family construction in 2015 than any of the recovery years to date.”
View the current monthly Alabama Residential Report here.
The ACRE New Construction Monthly Report is work product stemming from our partnership with the Home Builder’s Association of Alabama Foundation.
About ACRE. ACRE was founded in 1996 by the Alabama Real Estate Commission, the Alabama Association of REALTORS and the Office of the Dean, UA Culverhouse College of Commerce. ACRE is not a state-funded entity, rather its operates in part because of the goodwill & generosity of our ACRE Corporate Cabinet and other statewide ACRE Partners.
Alabama residential sales during the third quarter while sluggish continued to gradually improve, up 3.3 percent compared to the same period a year earlier. This is an improvement over the 2.3 percent growth experienced in the second quarter of the year. Total sales of 12,469 units represent the best third quarter since 2007 (15,051 units). With that said, third quarter sales are still 25.2 percent (was 25.0 percent last quarter) below the quarterly peak established in 2005 when 16,674 units were sold.
Supply: The statewide housing inventory average during the third quarter was 33,538 units, a decrease of .9 percent from the same period in 2013 and 17.7 percent below the third quarter peak in 2010 (40,745 units). There was 8.1 months of housing supply (7 months considered equilibrium during 3rd quarter) in the third quarter 2014, the same as last year (3Q). Historical data indicates that the third quarter inventory-to-sales ratio in 2014 decreased 23.6 percent from the 5-year average (10.6 months) and decreased 14.7 percent from the 3-year average.
Demand: Historical data indicates that third quarter sales in 2014 increased by 12.1 percent from the most recent 3-year average (’11-’13) and 18.3 percent from the 5-year quarterly average (’09-’13).
Pricing: The statewide median sales price during the third quarter was $130,284, an increase of 1.8 percent from the same quarter in 2013. Historical data indicates that third quarter median price in 2014 increased by 3.6 percent from the most recent 3-year average and 3.2 percent from the 5-year quarterly average (’09-’13).
ACRE was founded by legislative act in 1996 due to the efforts of the Alabama Real Estate Commission, the Alabama Association of REALTORS and the Office of the Dean, UA Culverhouse College of Commerce to serve the State of Alabama real estate industry and the consumers it serves. ACRE is not a state-funded entity, rather its operates in part because of the goodwill & generosity of the ACRE Corporate Cabinet and our statewide ACRE Partners. Follow us @uaacre
WHY YOU SHOULD OWN REAL ESTATE
Although the 2008-2009 financial crisis rocked the country’s real estate market and practically every other investable asset class, I believe there are incredible benefits to investing in real estate to ensure a healthier retirement. As soon as you find a place you can envision yourself living for at least five years, it’s probably a good time to start your property search.
1) Inflationary asset. I remember thinking to myself back in 1994 how ridiculous it was to pay $1,000 a month for a one bedroom in Boston when I was paying $350 a month to rent a room in a townhouse with my buddy in Virginia. Today, a similar one bedroom is over $3,000 a month. Inflation is a powerful economic force that’s difficult to stop. You want to own inflating assets rather than always be a price taker. Eventually your income will stop growing, decline, or eventually disappear, making survival that much harder if you must continue renting.
2) A hedge against conflict. Whenever there is geopolitical risk, a major natural disaster, or a terrorist attack, notice how US Treasury yields go down due to a flight to safer assets. Housing is a direct beneficiary of lower interest rates due to the common practice of borrowing to own. When interest rates go down, refinancing activity also picks up, increasing the cash flow of homeowners everywhere. I have personally refinanced five times with various properties and am paying $3,500 less in interest a month than 11 years ago.
3) A leveraged play in a bull market. When times are good, assets tend to inflate quicker due to higher employment, rising wages, and rising corporate profits. Real estate tends to be a major beneficiary during a bull market. Earning a 32% equity return in 2013 was fantastic. But earning a 75% cash on cash return on your 20% equity thanks to a 15% rise in home prices is even better.
4) Tax benefits. The US government has deemed real estate part of the American dream with mortgage interest deduction, the 1031 exchange program to defer taxes, and a generous $250,000 tax free gain for singles and $500,000 tax free gain for married couples. It takes a $714,000 return at a 30% effective tax rate to clear $500,000 in profits. Based on my research, I’ve found that the ideal mortgage amount and income combo is $1 million and $250,000 a year based on today’s rates.
5) Much easier for a regular person to understand and manage. Real estate is a relatively easy business to understand compared to investing in stocks. Good location, good tenants, manageable maintenance, and rental growth are all it basically takes to make for a solid real estate investment. Stocks have so many more variables to deal with, including: management credibility, industry growth, competition, politics, regulation, tax policies, inventory turns, margin analysis, operating profit growth, and more. It’s no wonder you’ll find plenty of first generation immigrants focus on accumulating property.
6) Less temptation to sell out too soon. Thanks to still stubbornly high selling commissions, the ability to sell is much more difficult than selling a stock when the markets are crashing. I know plenty of people who just had to get out of the stock market in 2008-2010 because they were scared out of their minds. It’s so easy to pay a $8 commission and press click. But when you’ve got to pay a 5% commission and go through the entire process of marketing a property, you tend to just sit tight and see what happens.
7) Paying back debt with inflated dollars. For people with fixed rate mortgages, their payments never change. 10 years from now you’ll get to pay off the same amount of debt with dollars that aren’t worth as much as when you first took out the mortgage. As your net worth grows, the mortgage liability becomes a smaller part of your overall net worth, thereby reducing any feelings of stress associated with the loan.
8) Never have to move again (so long as you pay your mortgage). Moving is a painful process. What’s more painful is having to move when you don’t want to. Many long-time renters are being displaced in cities such as San Francisco because the property owners want to capitalize on the demand. I was speaking to one renter who is being asked to move after 18 years. He has no job, a daughter who is entering high school, and a wife who no longer wants to be with him. He pays $1,990 a month for a place that could easily rent out for $3,800 a month.
9) Passive income machine. Although real estate takes ongoing maintenance, rental income is one of the best passive income sources around along with dividend investing. After the hard work of finding the perfect tenant is done, one should usually expect to collect income for at least 12 months before another tenant may need to be found. The rental income is also partially or completely shielded by non-cash depreciation expense as well thanks to the government.
10) An asset to pass on to your heirs. Everybody has heard a story of some grandparent buying a home for $20,000 that is now worth hundreds of thousands or even millions of dollars. If you can buy a property to live and enjoy, and then pass it down the family to give your children a heads start, what an amazing gift you’ll provide. It’s very difficult for Millennials to buy their own property nowadays. But besides working hard, a massive generational wealth transfer should help support future generations.
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Alabama residential sales totaled 3,957 units in September, an increase in sales growth of 11.1 percent from the same period a year earlier and 201 units above of our monthly forecast. September joins June and July as the only months in 2014 where sales have eclipsed last year. Nationally, sales were off 1.7 percent in September from the prior year. See more details of how Alabama compares to the broader US market here.
The YTD Alabama sales forecast through September projected 35,170 closed transactions while the actual sales were 34,169 units, a 2.8 percent cumulative variance. YTD sales through September have been sluggish in most markets across the State but remain 2.4 percent above the 2013. Sales were up 3.3 percent in the third quarter compared to 2013.
Across Alabama, 76 percent of local markets reported positive sales growth compared to last September. In comparison, this figure was 64 in August and 48 percent in July. This figure also remains at 54 percent when taking into account total YTD sales compared to 2013.
Pricing: While the return of more consistent year-over-year sales gains is encouraging news, the lead story in 2014 relates to pricing. The Center shared in earlier reports that pricing represents the primary indicator that still had the greatest upside in the future. At least through September, this has come to fruition as the YTD median sales price is up in 19 of 25 or 76 percent of local markets. While this is good news for the market, as prices increase, sales (the typical lead story) attributable to investors bargain hunting will diminish the ability of this “buyer profile” to push the sales needle in the future. Distressed sales continue to significantly diminish as a percentage of total sales across the US, a trend most market watchers content will continue in the future.
The median sales price improved by approximately 4.5 percent over last September and 6.1 percent when comparing the year-to-date (Jan-September) average for a broader perspective. Still, Alabama remains below the nation’s recent pace of appreciation but the Center prefers gradual increases in pricing over spikes seen in many parts of the country (typically in markets hardest hit by the recession). Keep in mind that pricing can fluctuate from month-to-month due to sampling size of data and seasonal buying patterns. The median price decreased 8.7 percent from the prior month. This direction is consistent with historical data (09-13) that reflects that the September median sales price traditionally decrease from the month of August by 2.6 percent.
Supply: The statewide housing inventory in September was 32,992 units, a decrease of 2.5 percent from September 2013 and 22.1 percent below the month of September peak in 2007 (42,329 units). There was 8.3 months of housing supply (7.5 months considered equilibrium during month of September) in September 2014 versus 9.5 months of supply in September 2013, a 12.2 percent favorable decrease. September inventory also decreased by 1.7 percent from the prior month. This direction is consistent with historical data that indicates September inventory on average (09-13) traditionally decreases from the month of August by 5.6 percent.
Demand: As anticipated, September statewide residential sales declined 4.4 percent from the prior month. This direction is consistent with seasonal trends & recent historical data that indicates September sales, on average (09-13), decrease from the month of August by 9.9 percent.
The fact that there are fewer distressed properties (attracting bargain hunting investors – typically cash buyers) changing hands when compared to last year has also narrowed the favorable percentage change associated with sales growth.
Seeking Balance: Ten or 42 percent of local markets are considered near or in balance where buyer and seller enjoy equal bargaining power. More markets are inching closer so this is encouraging news.
In contrast to reports of lack of inventory at the national level, Alabama still has above the needed levels of supply in most local markets (13 of 25 markets or 52 percent still have 10+ months of supply) but the supply of “quality” inventory is limiting sales according to local professionals with boots on the ground.
Industry Perspective: “The September National Housing Survey shows a slight recovery in consumer housing sentiment after a two-month setback, bringing us back to the modestly positive trend we’ve seen over the last year,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “It might be too late to save this year’s home sales from posting the first decline in five years. However, the return to an upward trend in housing sentiment, combined with this month’s positive news on the jobs front, suggests that a broad-based, albeit measured, housing recovery is on track to resume in 2015. The results of the past few months show that consumer optimism remains cautious and somewhat volatile, and we’ll likely continue to see bumps on the housing recovery path reflected in our survey results.” For full report, go HERE.