Economic Snapshot Overview by Dr. Reid Cummings - January 2019
Posted on January 29, 2019 by Dr. Reid Cummings
Greetings, and welcome to the January 2019 Mobile Bay Economic Snapshot.
This month, we recap the year in real estate, contrasting 2018 market activity with the previous year. We also offer commentary on several fiscal and economic issues important to so many in our region. We also briefly introduce the concept of Opportunity Zones and discuss its importance to both real estate investors and economic development officials.
There were 8,244 existing single-family homes sold in 2018, generating total sales volume of $1.03 billion. Of this amount, mortgage financing totaled $647.7 million, which is 62.8% of sales value. Given that mortgage financing typically ranges from 80% of purchase price for conventional loans to 100% for VA loans, a reasonable inference is that a large number of transactions were paid for in cash. The median sales price was $114,100, a 17.7% increase over 2017. The average sales price of existing single-family homes was higher at $125,300, which is 7.01% more than in 2017.
On the new homes front, a total of 339 new homes were sold, generating total sales volume of $76.6 million. Mortgage financing totaled $66.3 million for the year, which is 86.6% of the total value. This number likely suggests an increase in the number of new mortgages requiring private mortgage insurance, which is typically required by conventional mortgage lenders when down payments are less than 20% of the purchase price. The median sales price was $226,550, a decrease of 2.66% from 2017. The average sales price was $226,640, a 0.38% increase over 2017.
A review of 2018 condominium sales indicates 230 sales, totaling $34.1 million. Interestingly, mortgage financing for condominium purchases totaled $13.1 million, which is 38.5% of the total sales volume. This points to a significant number of all cash transactions. The median sales price was $121,000, while the average sales price was $149,000.
There were 472 commercial property sales in 2018, totaling $611.9 million. Although the number of transactions was slightly less than in 2017, total sales volume was 13.3% higher in 2018. The total commercial property mortgage financing of $406.7 million accounted for 66.5% of total sales volume, reflecting the much lower loan-to-value ratios typically required by lenders on commercial properties. The median transaction price was $485,300, while the average sales price was significantly higher at $1.28 million.
In 2018, 5,844 existing single-family homes were sold, a 3.7% increase over 2017. Total sales volume of $1.43 billion was 9.1% higher than in 2017. Mortgage financing for existing homes totaled $751.6 million, which is 52.7% of total sales volume; this statistic suggests significant equity investment. The median sales price was $194,500, 8.06% higher than in 2017. The average sales price was $244,000, a 5.81% increase over 2017.
New home sales ticked up slightly, ending the year 0.4% higher than in 2017, with 1,453 transactions totaling $384.5 million. Mortgage financing of $267.7 million accounted for 69.6% of total sales, again suggesting a larger proportion of equity investment than might be expected. The median sales price of $234,300 was -2.94% lower than in 2017. However, the average sales price was up 4.86% over the same period, finishing the year at $263,300.
Fewer condominiums changed hands in 2018. The total of 2,444 units sold was 10.5% less than the 2017 total, producing total sales volume of $833.9 million. Of this amount, $285.8 million was financed; at 34.3% of total sales volume, clearly many investors paid cash. Both median and average condominium sales prices were higher than in 2017. The median sales price of $302,100 was up 3.07% and the average sales price of 341,600 was up 11.8%.
There were 341 recommercial estate transactions in 2018, a 6.6% increase over 2017. However, total sales volume fell by 16.7%, ending the year at $275.1 million. Mortgage financing totaled $147 million, accounting for 53.4% of total sales. Both the median and average sales prices were less in 2018 than in 2017. The $371,500 median price was 28.68% less and the $777,500 average price was off 25.3%.
What lies ahead for 2019 will depend on several ongoing trends. The tight labor market continues to be a challenge for the construction industry, and expectations are that this will remain largely unchanged in 2019. One result will be higher new home construction costs, and as a result, higher new home sales prices as well.
The Federal Reserve Bank has indicated it will continue to raise interest rates this year, albeit perhaps more slowly than many analysts have speculated. How many increases and how significant they might be, remain matters of speculation at this point, but as the cost of money continues to rise this year, sellers and their agents will need to heighten their efforts to keep real estate sales moving in the right direction.
Talks between U.S. and China trade representatives continue. Those watching the process closely are encouraged that substantive agreements might be reached and implemented this year, paving the way for tariff relief for area manufacturers. This is a highly critical issue for many companies, especially those highly dependent upon competitively-priced steel and aluminum.
Finally, the Tax Cuts and Jobs Act passed by the U.S. Congress in late 2017 introduced new legislation designed to promote economic development in low-income and rural areas. The newly-created Opportunity Zones allow investors to shift unrealized capital gains into real estate investments within the designated areas. There are 158 Opportunity Zones statewide, including 14 in Mobile County and 6 in Baldwin County. As real estate investors work to better understand the nuances of this new legislation, we expect to see new Opportunity Zone development on both sides of the Bay.
Until next time, from everyone at the Center, we wish you and yours all the best.