TUSCALOOSA, Ala. — With the daily doses of bad economic news and the “R” word slipping off the tongues of even the most bullish forecasters, what is in store for the housing market?
According to the Alabama Real Estate Research and Education Center at The University of Alabama, the national numbers for December indicate that the housing market did see some erosion at the end of 2000, but remains strong despite a slowing economy.
“As with our previous report, the statistics are still presenting mixed signals,” said Dr. Leonard Zumpano, director of the center. “The National Association of Realtors reported that the sales of existing homes in December dropped 7.4 percent, while sales of new homes simultaneously jumped 13.4 percent. Average selling price decreased 2.3 percent to $205,100. Housing starts turned slightly upward by .3 percent, while permits declined by 6.6 percent.”
Zumpano said there are a number of factors to keep in mind when interpreting the latest numbers. “First, the winter weather for 2000 was the worst recorded in several years. While housing numbers are seasonally adjusted, the adjustment numbers are based on November and December of 1999 and 1998, two of the mildest winters on record. In addition, harsh weather will tend to discourage shoppers in any market while simultaneously causing many housing starts to be postponed.
“So, the current data is quite possibly biased in an unfavorable direction. Secondly, The Federal Reserve did not even announce a policy toward easing interest rates until December 19, with the first 0.5 percent rate cut not announced until January 3. Therefore, much of the data for December is based on higher interest rates than are currently available.”
There was a little more weakness at the state level than at the national level, according to Zumpano, but the market remained steady. Zumpano said the total number of existing homes sold in December was down about 10 percent from November and average number of days a house was on the market increased by 5.1 percent, both indications of a slowdown. However, at the same time, the average selling price was up 2.2 percent in December.
Zumpano said additional insights into the health of the state’s housing sector can be gained by looking at year-to-year comparisons. “When year-to-date 2000 numbers are compared to all of 1999, an exceptionally strong year for the housing market, we can see things are not going so badly,” he said. “Year-to-date, total home sales were down about 2.2 percent, to 33,225 from 34,350. Year-to-date average selling price was up only 4.3 percent while average days on the market actually fell to 144 from 147.”
“Currently, we are not seeing any signs of a sharp downturn in the housing sector. The Fed’s quick and decisive rate cuts are already causing a refinancing boom and can certainly be expected to give a boost to the housing market as lower interest rates take hold,” he said. “The main indicator to worry about at this point is the consumer-confidence index, which, in turn, is heavily influenced by employment numbers. People obviously are not going to jump into a 30-year mortgage if they are worried about whether they will have a job next month.”
Zumpano said despite evidence of a slowing economy, he expects existing home sales in 2001 to remain strong and fall only slightly from the numbers recorded in 2000. Although further economic setbacks could precipitate a recession, he said lower mortgage interest rates should help bolster consumer confidence. “The recently reported increase in consumer expenditures in January is, indeed, reassuring, offering hope for a quick turn around in the second half of the year, ” Zumpano said.
The University of Alabama Culverhouse College of Commerce and Business Administration, founded in 1919, is home to the Alabama Real Estate Research and Education Center. The Center works with the Alabama Association of REALTORS, the Alabama Real Estate Commission and the research division of the National Association of REALTORS to compile a state housing affordability index each quarter.
Contact
Bill Gerdes, UA Business Writer, 205/348-8318