Montgomery’s real estate and construction industries are still in recovery mode but looking healthier and more robust than ever.
In the early 2000s, you couldn’t look anywhere without seeing something being built, a new row of retail spots under construction, a field full of framed up houses soon to be filled with families. When the recession hit in 2008, the number of new construction projects as well as prices on existing properties in the River Region – and beyond – fell hard and fell fast. But figures from the last few years show a steady rise, and most experts agree that both the construction and real estate industries are well on their way to recovery.
That’s certainly the opinion of Jimmy Rutland, president of Lowder New Homes in Montgomery, board member of the Greater Montgomery Home Builders Association and current vice president of the Home Builders Association of Alabama. “We hit our peak for the residential industry and market here in 2004,” he said. “We had almost 1,300 single-family residential permits pulled in the Montgomery/Prattville/Pike Road area. Then, in 2009, we saw the big dip. There were only 300 permits.”
Fast forward to 2016, and close to 600 permits were issued, putting the market in double digits off the bottom. “That’s great news,” Rutland said. “And it’s in keeping with what other areas of the state and our region are seeing. In general, most of us are in the same place, and that’s been seeing good increases over the last three years.”
Grayson Glaze, executive director of the Alabama Center for Real Estate (ACRE) at The University of Alabama, echoed Rutland. “Underlying market fundamentals overall have gradually continued to improve,” he said. In real estate, local markets are either moving toward or away from a balanced market where buyers/tenants and sellers/landlords enjoy equal bargaining power. “Real estate professionals sometimes refer to a balanced market as a healthy market,” Glaze said. “During the most recent downturn, every market in Alabama, including Montgomery, experienced an oversupply as demand waned—a byproduct of the great recession.”
In 2016, residential sales had improved 52.5 percent from the trough but remained 31.4 percent below the last peak. Still, the gradually rising demand has eaten away at housing inventory, which has dropped 26.2 percent from its 2008 highest numbers, according to ACRE’s research.
Carol Andrews, president of the Montgomery Area Association of REALTORS®, concurred with both Rutland and Glaze, noting that she and her colleagues feel positive. “There is a lot of optimism in the industry right now,” she said. “New Realtors are joining our association and the stats are up.” She also pointed to inventory being an issue. “Inventory could be a little better, but new construction is coming on every day. We also need to see inventories increase at all price points and home sizes. We are moving in the right direction, but it will take more inventory to get back to a strong balanced market.”
MEET THE EXPERTS
Grayson Glaze, executive director of the Alabama Centerfor Real Estate (ACRE) atThe University of AlabamaACRE’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. Visit acre.cba.ua.edu to learn more and access a wealth of information.
Carol Andrews, president ofthe Montgomery Area Association of REALTORS®The Montgomery Area Association of REALTORS®, a member-driven organization that adheres to a strict Code of Ethics, is helping its members become more profitable and successful through education, technology and professionalism and by providing industry technology that helps them service their clients and customers. Learn more at maarmlsonline.com.
Still Room to Improve
Last year ended with some promising figures, but permits were actually down slightly when compared to 2015. “It was such a small percentage, it’s basically flat,” Rutland said. The reason, according to Rutland, is fewer developable lots currently in the marketplace. ACRE’s findings show the same thing. “According to our intel from active market participants, the limited supply of residential lots in good areas available for builders is a challenge right now,” Glaze said. “The market is generally at the end of the foreclosed lot inventory typically bought from banks. The market is having to adjust to the pricing dynamics of new lot development not only in Montgomery but across the country.”
A healthier economy has been a major factor in the gains seen in the last few years, as Glaze pointed out. “The solid improvement and growth across the board in economic indicators that drive real estate —population, employment, and per capita income —are behind the progress,” he said. Andrews also credits overall progress in the economy for recent growth. “Buyers are coming back to the market in all our areas. With an improved economy, I think our numbers will continue to trend up,” she said.
Rutland agreed, and added a plug for his industry. “The general economy picking up overall helps. People who got hurt, got their credit damaged in recession, have gotten that repaired and have accumulated the needed cash to buy a home,” he said. “And I’m a big believer that the home-building business is a driver of the economy too, not just an indicator.”
While the overall improvement in the economy is a positive thing for almost all businesses, real estate and construction included, it is important to note the different factors that affect the different sectors of the industry. “The multi-family housing industry did huge the last five years, when the people who got foreclosed on had to move into apartments,” Rutland said. “But those folks are now getting back on their financial feet, and many are ready and able to get back into a home they own.”
There’s also the commercial side of these industries, and things are looking up there too, according to Eric Higgins, president of Colonial Commercial Realty, Inc. “Commercial follows residential, and residential is back on track now, so we are seeing the commercial real estate arena follow suit,” he said. “East Montgomery is adding retailers, and downtown and the central business core are seeing further development. And Montgomery’s big catalyst continues to be the government here, the state and our military bases.”
He pointed to President Trump’s plans to boost defense spending. “I would think Maxwell AFB and Gunter would benefit from that,” he said. “Montgomery has pockets of opportunity everywhere and smart local developers are always going to make the most of them.”
David McClinton, president of McClinton Commercial Real Estate, has been in this industry since 1999, and he shares Higgins’ bullish outlook. “There is a good bit of optimism now, where just a few years ago, the attitude was still one of ‘What’s the next shoe to drop?’” he said. “There’s really been a lot of improvement in perception.”
While perception may be slightly outpacing reality, McClinton still believes business is and will continue to increase. “In terms of actual deals, I wouldn’t say it’s wide open yet, but we are seeing activity in most sectors,” he said. “Overall, things are definitely feeling and looking better.”
Just like commercial real estate seems to follow residential real estate’s ups and downs, it too is being affected by technical innovations, something Jim Wilson III, chairman and CEO of Jim Wilson & Associates, knows plenty about. He explained how technology is changing the commercial segment of his business.
“One example is the office market,” he said. “In the old days, companies needed more equipment and more staff to do their work and so, more space. But now everyone has cell phones, iPads, and laptops. Not everyone needs an assistant to handle daily tasks. The office market is getting beat up pretty good by that.”
Technology and the internet are hurting brick and mortar retail too. “You can hardly find a music or book store anymore,” Wilson said. “So many people, even older people who once didn’t ‘get’ online shopping, are buying a lot online.” He stressed how this currently hits more than his industry. It’s lowered the state’s tax revenues too. “We are a sales-tax based state, and the loss of sales taxes from internet sales is one reason we have a hole in our general fund budget,” he said.
In line with this information, he offered a word of warning. “Any new retail and commercial real estate has to take into consideration the ease of getting to it,” he said. “We have to be very aware of the road systems and traffic to and from. The time it takes someone to get in and out of somewhere is really key. People are so busy.”
Morgan Bell, manager at Montgomery’s Bell & Corwin Realtors, has been in the real estate business for 20 years. He outlined a few of the ways technology, including the rise of social media, has changed how brokers and realtors do their jobs.
“There have been some major changes in our industry. One of the biggest is the switch from MLS (multiple listing) books to a web-based MLS system. Another is using Bluetooth entry instead of key boxes to gain access to properties. This provides much better security for homeowners.”
He listed others including:
• Buyers don’t look at as many homes. They spend more time online and narrow down their list before they ever tour.
• Buyers from out of town can do a lot of shopping from home.
• With the popularity of social media, we now have a new form of advertising that is more up-to-date than previous print-media-only marketing.
• Carol Andrews, president of he Montgomery Area Association of REALTORS®stressed the need for accurate information. “The consumer now has a lot of information at their fingertips but not all the information is accurate. If you really want to know home values and market-driven statistics, the best place to go is a local realtor.”
TECHNOLOGY & FUTURE TRENDS
IN RESIDENTIAL REAL ESTATE, ESPECIALLY NEW CONSTRUCTION, ADVANCES IN TECHNOLOGY ARE CHANGING HOW HOUSES ARE BUILT AND BRINGING NEW FEATURES TO THE FOREFRONT.
“Smart homes” keep gaining popularity, but the addition of energy-efficient HVAC systems, extra insulation and more aren’t only based on consumer demand. Many of these “green” concepts are now required by energy codes that went into effect in some areas in 2012 and are now in place in Montgomery. “This is one of biggest changes in our industry in the last five years,” said Rutland. “As builders, we’ve had to implement these things that add considerable cost to the house, but it has been hard to get the appraisal to show that value. Both state and local Home Builders Association Boards are working right now to find a middle ground on this.”
Rutland also mentioned a trend gaining steam as baby boomers hit their golden years. “The age 55-plus housing market and products to serve it, like neighborhoods where all yard work is handled and other offerings, will grow in the next five years,” he said. “I don’t see much of that here yet, but it’s coming.”
A PROMISING 2017
ACRE’S FORECASTS FOR THE FUTURE OF RESIDENTIAL REAL ESTATE IN MONTGOMERY ARE ROSY.
“From strictly a volume perspective, the Center’s overall residential forecast ‘model’ for Montgomery sales tracks closely with last year’s market performance, but we’re cautiously optimistic that the local market will out-perform these projections. New home sales as a sub-component could see double-digit growth in 2017. As the real estate market enters the prime home buying season, the Alabama (and Montgomery) real estate community is more optimistic according to the Alabama Center for Real Estate’s Alabama Real Estate Confidence Index. The South Central Region’s (which includes Montgomery) overall score improved by 5 points to 59 from last year, up by 10 from last quarter. The outlook for sales improved by 6 points from last year, and up by 13 from last quarter to 63. Credit improved by 6 from last year to 51, up by 6 from last year.”
- Grayson Glaze, executive director of the Alabama Center for Real Estate at The University of Alabama
The ability to get a mortgage is one facet of real estate that really matters, and with the rule changes and higher standards required to quality for a home loan put in place in response to the recession, it’s harder than ever before to borrow money. But some believe President Trump’s policies may change things for the better.
“It went from basically if you could fog a mirror, your loan was approved, to now, where you have to provide a huge amount of paperwork and have a substantial cash down payment,” said Jimmy Rutland, president of Lowder New Homes in Montgomery, board member of the Greater Montgomery Home Builders Association and current vice president of the Alabama Home Builders Association. He’s hoping there’s a middle ground, and that we’re headed toward it.
Developer Jim Wilson III has the same thoughts. “I hope President Trump relieves some of the stigma on banks, and they can get out from under some of the regulations on mortgages,” he said. “We can’t go back to what it was, but it needs to be a bit more realistic. Any time you give more free flowing capital to market, it helps growth.”
And he’s looking forward to the specifics of Trump’s tax policy too. “If he lowers tax rates on corporations and brings that money back here, which grows jobs, and folks can borrow money in more efficient manner, obviously those things in tandem will help everyone and the housing market here,” Wilson said.
Grayson Glaze, executive director of the Alabama Center for Real Estate (ACRE) at The University of Alabama, outlined the predominant opinion among those in the industry. “The sentiment at this moment within real estate circles is that Trump’s pro-business policies should favorably impact our industry starting with greater confidence among small business owners and the consumers they serve.