Real Estate Update: Inventory increases while construction costs remain high

According to Realtor.com’s most recent monthly housing report from February, active listings of homes for sale were up 65.2% relative to January. 

This number still represents a 43.2% decrease from 2019’s pre-pandemic levels, however, it is indicative of construction and real estate picking back up from the shutdown. Here in Huntsville, the latest figures, accurate as to February 25, 2023, show Huntsville-Madison County increasing its inventory of single-family units by 96.2%, up to 2,641.

Realtor.com reports that, across the nation, homes are spending longer on the market compared to last year, which matches with Huntsville’s January report of an 89.5% increase, to an average of 36 days on the market. 

This isn’t necessarily a bad thing, however, as it shifts the balance of negotiation leverage a bit towards buyers, empowering them to make better deals and take the time to ensure that the final agreement is less hurried. 

What is unclear is how sustainable this pickup in inventory will prove to be. 

According to a survey conducted by the National Association of Home Builders and the Wells Fargo Housing Market Index, a staggering 96% of US home building companies reported the cost and availability of construction materials as being a problem. 

According to the Home Builders’ Digest, the cost of building a standard-construction, single-family home in the Huntsville area averages around $170 per square foot. This increases to around $200 per square foot for mid-range construction, and even higher for luxury or high-end homes. 

These represent “hard costs,” as opposed to “soft costs,” which are such expenses as building permit fees, architectural design costs, and land fees. 

Combined, these costs represent a floor, keeping the price of housing high. While Huntsville’s housing costs remain below the national average, they are still increasing, with the median sales price reaching $295,000 in January. 

The good news is that this is keeping the bottom from falling out of the real estate market. The bad news is that this represents a continuing source of frustration for those looking to buy, rent, or even build a home in the area. 

Out-of-state investors are able to bid more to hire companies to build homes in the attractive Huntsville market, and then rent them out for continuing profit. The National Association of Home Builders’ survey also listed the availability and cost of labor as a continuing factor in driving up construction costs.

All of these factors combine together in unpredictable ways. Will the escalating prices blunt demand, and in turn, lower construction costs? Will Huntsville’s allure as a good place to live and work keep that demand high? Will efforts from local, state, and federal agencies to promote housing affordability succeed in addressing the challenges of putting actual people in actual homes? 

Keep reading The Huntsville Business Journal and its Real Estate Update as we work to inform you of all of these developments in the real estate market.