The Huntsville Business Journal, in partnership with the Huntsville Area Association of Realtors (HAAR), is pleased to present a new feature to the Real Estate Update column: weekly updates on the state of the Huntsville/Madison County residential real estate market.

With reports coming in with greater frequency, and in greater detail, the column will be better able to keep our readership informed of the conditions of the Huntsville market.

This first installment covers the state of the market for the week ending on October 8, 2022.

The sharp rise in interest rates have led to a decline in mortgage and refinance activity. According to the Mortgage Bankers Association, mortgage activity has plummeted to the lowest levels seen in 25 years, with mortgage applications to purchase dropping 39% compared to the same week in 2021.

The market for single-family homes demonstrated increases in listings and inventory coupled with decreases in pending sales. While the new listings saw a modest increase of 0.6% to a total of 161, the number of residences in the monthly inventory jumped 86.7%, to a total of 1,121. The pending sales listed for that week dropped sharply, a 30% decline down to 114.

However, townhouses and condominium units actually saw an increase in pending sales; 12 units were listed that week, and with 10 units sold, the pace was just shy of replacement. With that said, an additional 84 units were added to the inventory that week.

Townhouses, of course, are more affordable than their single-family counterparts, as illustrated by the housing affordability indexes for both types of unit.

The housing affordability index compares the median household income in an area to the median price of a housing unit in an area. A higher number means greater affordability; for example, an affordability index of 120 means that the median household income covers 120% of the median price of a housing unit, under the prevailing interest rates.

For both townhouses and single-family homes, the affordability index took a hit from September of 2021 to September of this year. Townhouses saw a 36% decrease in affordability, showing an index of 103 – meaning that the average townhouse, with a median sales price of $266,500, is affordable to the average income, but only just.

In contrast, single-family homes in Madison County now have an affordability index of 83 – that is to say, the average household income only covers 83% of the cost to qualify for a single-family home, which lists for a median of $337,750.

All of this together has caused something of a slowdown in the pace of selling homes in Madison County: single-family homes stayed on the market for an average of 14 days, up from

8 the previous year. Townhouse units spent an average of 18 days on the market, but that tracks more with previous years’ figures, whereas such units sold much more rapidly in April of this year, where they spent a mere 5 days on the market, on average.

High interest rates do not simply appear out of the aether; they are intended to lower the rate of inflation. The combination of high interest rates slowing sales, and the introduction of inventory into the market should deflate the cost of housing a bit. This can be seen in the minor dips – 1.7% and 2.3%, respectively – of the percent of list price received for both single-family and townhouse units. This figure is found by dividing the price actually received by a sold property by the latest list price before sale, then deriving the average for properties sold in a market over a given period. In September 2020, the percent of list price received was at or near 100% for both types of units – what they listed was almost exactly what they sold for – before swelling a point or two in September 2021, and then dipping below 100% in September 2022.

While the high interest rates are certainly painful, in the long run, the correction should help in making homes more affordable for the young professionals looking to move to Huntsville. Demand for housing remains high, so the rate of sales should eventually pick back up – it’s also important to note that autumn is generally a slower time for real estate sales anyway – but at a more reasonable rate than the uncontrolled explosive growth of the pandemic years.

As always, the Huntsville Business Journal will continue to bring its readers the information they need to succeed.