Posted by Matt Curtis on Friday, October 28th, 2022 10:21am.
In the October Housing Market Update, we’ll look at how rising interest rates have affected the Huntsville, AL market as we’re coming out of a record housing market and what to expect for the rest of 2022 as we head into 2023. If you’re looking to buy or sell a home in Huntsville, AL area, this information can help you make the best decision based on your situation.
New listings are relatively flat year over year with a 0.9% increase, there were 1,474 new listings in September 2022 versus 1,461 for September 2021. That makes sense because, in September 2021, we had many sellers that were sitting on the sidelines because they just couldn't find the right home they were looking to move into. Now we have some sellers that are sitting on the sidelines because they are locked in at a great rate in the high 2% or low 3% range and they are looking to stay in their home as interest rates are beginning to rise.
Pending sales numbers are expectedly coming down with a 13.7% year-over-year drop, from 1,275 in September 2021 to 1,100 in September 2022. There are a couple of reasons for that decline. First, we're coming off of a record hot market and we're starting to normalize in terms of sales. Second, higher interest rates are pushing a lot of buyers out of the market due to affordability.
With pending sales down, you would also expect closed sales to be down as well which is the case. There was a 13.9% year-over-year drop from 1,506 to 1,297 for September 2022, which is not quite as aggressive as I'm hearing in some parts of the country. In Canada, I'm hearing about 15%, 20%, and sometimes even as high as 30% drops in closed sales.
Expect the number of closed sales and pending sales to continue to decline as the Fed continues to raise interest rates. It’s predicted that overall sales may drop another 15% to 20% going into 2023.
We’ve had record-low days on market but with fewer pending sales and fewer closings as well, you would expect that number to finally start to come up and it is starting to inch up slowly. In September 2021 it was down to a record low of 13 days on market, now we're up to 19 days on market. It’s still nowhere close to a healthy market in terms of a buyer or seller demand balance, but we're moving in a positive direction. as affordability continues to be a challenge.
The average sales price is up year over year by 8.8%, from about $305,000 to $332,981. The good news is it has come down from previous highs over the last couple of months, which is normal during the summer timeframe to have a peak in sales prices. It’s coming down in the positive direction due to affordability, a lot of buyers are moving their price points down from higher price points to lower price points to combat that affordability challenge with higher interest rates.
Another positive sign for buyers, and just for the general health of the real estate market, is the percent of list price received is down 1.8%. For over a year we were seeing over 100% list price-to-sales ratios and back in September 2021, we were at 100.6%. Now we're down to 98.8%, still a small gap in terms of list price to the actual sales ratio but 98.8% is headed in the right direction. Just as a general rule of thumb, 97% is a really good, healthy mix between the list sales price and actual ratio. It gives you enough negotiation room for the buyer to come in and offer closing costs and other typical concessions. So 97% is the number that we're looking for, and I think we're going to likely see that over the next one to two quarters.
Unfortunately, housing affordability continues to be down. It is down 29.4% for single-family residences over the last year, down from 126 to below 89. A quick refresher, 100 means the average salary can buy the average home in Huntsville. Unfortunately, the average income can no longer afford the average single-family home here in Huntsville.
The positive side is that we are still about 100 for townhomes and condos, we’re at 113. One thing that our market has really lacked is a lot of great townhome and condo options for our community. One of the reasons for that is we've had such affordable housing for single-family homes that there hasn't been a big need and push for townhome and condo-type communities, but expect to see that going forward.
As I'm talking to builders, we hear rumors of a lot of townhome projects coming online. With affordability starting to dip for single-family homes, that's going to be a key component to keeping homes affordable here in the Huntsville area over the next quarter and really over the next several years and probably for the next decade here in the Huntsville market.
Since pending sales are down, closings are down, and days on market are starting to creep up, you would expect listings to begin to increase and that is exactly what we're seeing. Fortunately, inventory is up 83.3% year over year which has us sitting at 2.2 months of supply versus 1.2 months' worth of supply just a year ago. For a balanced market, there needs to be 4 to 6 months' worth of supply. By definition, Huntsville is still a seller's market being below four months, but that number is creeping up quickly and I expect us to hit that 4 to 6 months supply likely in the next two quarters.
With pending sales being down, closings being down, the average list-to-sales ratio starting to get more in line with a balanced market, and inventory starting to kind of balance out; a lot of savvy buyers are looking to take advantage of this market in a way that they haven't been able to in the past as multiple bid situations have kept some buyers on the sidelines.
Savvy buyers are looking at new construction with that glut of inventory that builders have right now. Talking to a lot of builders, they're wanting to get that inventory liquidated. A lot of them have a mandate to get it liquidated before the end of the year.
So my advice is, especially if you're looking at new construction, try to take advantage of that opportunity now as they're offering incentives and they have that supply because it's very likely over the next 2 to 3 quarters, that new construction supply in this market goes down dramatically. The reason for that is builders are putting a lot of new build efforts on hold and some of them are turning what would be new communities into build-to-rent communities. Basically switching from first-sale properties to rental communities. There’s a big opportunity right now to take advantage of new construction, that opportunity may not exist going into 2023.