Slow Train Moving
Is that light at the end of the tar-dark, five-year real estate tunnel?
Grayson Glaze, director of the Alabama Center for Real Estate.
We spoke in early May with Grayson Glaze, executive director of the Alabama Center for Real Estate, about the Alabama slice of the most troublesome sector in the economy. ACRE is the state’s academic center for real estate research and education. Located at the University of Alabama’s Culverhouse College of Commerce, the center networks with private real estate stakeholder firms across the state. ACRE’s Internet portal is acre.cba.ua.edu.
In 2011, the Alabama real estate market experienced a sales growth of 2 percent, its first since 2005. Local areas recently impacted by natural disasters, Tuscaloosa and Baldwin County, led the state. Tuscaloosa outperformed all metro areas with 12 percent sales growth, while Baldwin County bounced back admirably from the oil spill, with 18 percent growth, just ahead of Lee County, at 17 percent, to lead mid-size markets in sales. Cherokee County led all rural areas, with 25 percent growth in sales.
In the aggregate, Alabama’s mid-size markets experienced 6 percent growth, while both metro and rural markets flat lined in 2011.
All three Alabama markets defined by size have improved in 2012. Through the first quarter, metro markets have experienced 14 percent sales growth, led by a blistering pace of 33 percent in Tuscaloosa, followed by Montgomery, at 21 percent, and, for the first time in five years, Birmingham’s market is beginning to mend, with 15 percent sales growth. Birmingham represents 33 percent of Alabama’s total residential sales, so an improving Birmingham is huge for our overall statewide market. Calhoun County—Anniston—is slowly awakening from its slumber and leads all mid-size markets, with 20 percent sales growth through the first quarter.
Seventy-six percent of all reporting associations report positive sales growth during the 1st quarter, compared to the same period last year. This figure compares to 56 percent who represented positive sales growth for the entire calendar year of 2011.
Alabama residential sales are up 11.5 percent during the first quarter of 2012 from a year ago.
Despite respectable employment figures, the Wiregrass region, primarily Enterprise, is the only reporting area that has experienced unfavorable growth at both the end of the year and first quarter of 2012, while neighboring Dothan also still awaits a healthier market.
Tight lending standards continue in today’s real estate market. There does appear to be a general consensus that a “slight” degree of easing may be on the horizon as competition increases, but nothing remotely comparable to the former guidelines that fueled the real estate boom. Current lending level demands, especially for commercial loans with maturing terms, are far higher than supply. Industry leaders argue that recent regulations and actions have become too extreme, which hinders a real estate recovery and limits further economic growth. Market liquidity will continue to be a highly debated industry issue for some time to come. The introduction of cover bonds and potentially increasing the lending cap for credit unions are under consideration at this time as measures that could increase market liquidity.
Affordability levels at both the state and national levels remain at historically high levels. The Alabama median selling price in March was $118, 280, an increase of 6.3 percent from last March. The last time Alabama experienced an increase in the year-over-year median home price was six months ago as the September 2011 median price was .6 percent above September 2010. March residential sales in Alabama experienced an 8.8 percent increase, compared to March 2011. The last time the state’s real estate market experienced positive sales growth in March compared to the previous year was in 2010 when homebuyer tax credits stimulated sales. March represents the ninth consecutive month that Alabama home sales have improved compared to the same month from the prior year. March’s report continues the momentum highlighted in our state’s year-end report that showed Alabama’s 2011 residential sales ending 2.0 percent ahead of the prior year. The year-end figures reflect the first positive annual residential sales growth in Alabama since 2005.
Most commercial brokerages experienced very modest growth in 2011. While obstacles remain in the recovery process, including elevated unemployment, steady growth is more probable than not in 2012. With an economy that is primarily driven by consumer spending, the retail sector is followed very closely. Likewise, the office sector, which depends on employment growth for its long-term profitability, is another sector that is closely monitored, as job creation also is important to the broader economic recovery. With little development in either sector during the downturn, the level of absorption of current supply is where the focus is in today’s market.
Demand and rents in the multi-family sector in Alabama are on the rise. Nationwide, homeownership rates have declined by roughly 4 percent from their peak established in 2004. This ultimately leads to lower vacancy rates that are reflected in the most recent census data (Q1 2012). Improving fundamentals within this sector point to increased investor interest and development. The multi-family industry is certainly not immune to the real estate cycle and the laws of supply and demand. As rents continue to rise, there is a point where renters begin to balance rent payment versus cost of homeownership, and the pendulum will eventually swing, albeit much more modestly in the future.
March condo sales along Alabama’s Gulf Coast in Baldwin County experienced a 37.9 percent increase, compared to last March. Gulf Coast condo sales have now risen 60 percent from the market sales trough set in March 2007. The general consensus among market experts along the coast is this trend should continue as the market enters the peak spring/summer buying season. The Baldwin County condo median selling price in March was $239,600, an increase of 31.3 percent from last March, which represented the market’s bottom in terms of pricing during the month of March. As the condo market enters the second quarter of 2012, statistical volatility is anticipated.
As the real estate market enters the prime home buying season, the Alabama real estate community is more optimistic, according to the Alabama Center for Real Estate’s Alabama Real Estate Confidence Index. The outlook for sales for the 2nd quarter is at the highest level recorded in the three years this survey has been conducted, 61, a five-point improvement from last quarter. Commercial market participants (the majority of the respondents are from the Birmingham market area) moved to projecting a continuing improving market this quarter at 59 this quarter vs. 54 last for sales expectations. Price expectations are still soft, at 48 vs 45 last quarter, indicating pricing pressure. The score for credit availability has turned constructive, at 54 up from 48 points from last quarter.
In today’s market, real estate professionals, like never before, are utilizing real estate data to guide them and their clients through the murky waters left behind by the economic storm. ACRE’s core purpose is to advance the profession of real estate in Alabama by providing relevant resources in the area of research, education and outreach.
Chris McFadyen is the editorial director of Business Alabama.