State Housing Market Cools but Remains Very Strong, According to UA Center Stats

TUSCALOOSA, Ala. – The Alabama housing market cooled off in September from August’s record setting sales pace, according to the Alabama Real Estate Research and Education Center at The University of Alabama, but sales remained strong.

The total number of homes sold in September fell 17.7 percent to 3,211 units, while the average selling price held relatively steady, falling less than 1 percent to $121,414.

“The number of homes available for sale fell 392 units to 27,620, but the drop in sales pace caused the absorption rate to increase 1.4 months to 8.6 months in September,” according to Dr. Leonard Zumpano, director of the center.

The absorption rate is the number of months required to sell the supply of homes based on the rate of sales. Zumpano said the supply of homes has not been above eight months since April of this year, when it stood at 8.7 months. By way of comparison, there was a 10.7-month supply of homes in September of 2001, he said.

Although a 17.7 percent drop in the number of homes sold is substantial, Zumpano said home sales were not weak in September. With 3,211 homes sold, September 2002 is 23.6 percent above the 2,599 figure reported for the same time last year. And with 29,729 homes sold year-to-date, September 2002 activity is 10.3 percent higher than last year when 26,961 homes were reported sold.

Average selling price has hardly budged so far this year; at $121,414, it is less than 1 percent above September 2001. Year-to-date 2002, average selling price is up only 1 percent at $119,164 over 2002’s figure of $117,987. Even with the large slowdown compared with the August sales pace, the Alabama housing market is on track for another record setting year, Zumpano said.

“That said, the drop in home sales could indicate a much-anticipated drop-off in housing market activity,” he noted.

There may, however, be a positive aspect to the rise in interest rates.

“As interest rates start moving up, those home buyers who were previously on the fence will see this as a trend and be encouraged to buy before rates climb higher. I feel that we will have another banner year in home sales,” said Steve Cawthon, president of Alabama Association of Realtors.

Residential construction spending also fell 2.3 percent across the state in September, with only four out of the 13 areas tracked by F.W. Dodge reporting an increase in spending.

“Construction spending is subject to revisions and is notoriously volatile from month to month, but the slowdown could nonetheless be another signal that the housing sector is finally cooling off,” Zumpano said. “Interest rates also shot up during the week of Oct. 24, which further damped home sales.”

On the positive side, unemployment held steady in Alabama at a respectable 5.7 percent. In fact, every major metro area tracked by the Alabama Department of Industrial Relations recorded decreases in unemployment rates.

No such slowdown is evident at the national level. The sales pace of existing, single-family homes increased 1.9 percent to 5.4 million units on an annualized, seasonally adjusted basis according to the National Association of REALTORS®.

Home price appreciation is more obvious at the national level as well. September 2002’s median sales price was reported at $159,000, 7.9 percent over September 2001’s figure of $147,400. The median selling price is the midpoint. A figure of $159,000 means that exactly half of all homes sold for more than this amount and exactly half sold for less.

For comparison to the state figures, the national average selling price was $203,200. This is 9.7 percent above the average selling price in September of last year. The supply of homes remained relatively unchanged at 5.2 months, a tight number.

Housing starts showed no signs of backing down in September, either. Construction began on more than 1.8 million homes on an annualized, seasonally adjusted basis. That represents a 13.28 percent jump over August, the highest level of housing starts since 1986.

“Homebuilders are, no doubt, taking advantage of the tight supply of new and existing homes that is partly to blame for the run up in home prices,” Zumpano said. He said construction spending figures for September are not yet available, “but there have been four straight months of declines as of August, which could foreshadow a subsequent housing market slowdown. Despite the declines, the $8.3 million figure posted in August is still very strong from a historic perspective.”

Also, the employment situation eroded for the first time in four months in September, as 43,000 non-farm payroll jobs were lost. The nationwide unemployment rate fell to 5.6 percent, 0.4 percent lower than its peak of 6 percent in April.

There are a few signs that a slowdown is on the way for the housing sector, Zumpano said. Chief among these signs is increasing interest rates. Long-term rates shot up to 6.31 percent for the week ending Oct. 24 for a 30-year, fixed rate mortgage, according to Freddie Mac. The same mortgage averaged 6.15 percent the previous week and 5.98 percent two weeks before.

“Record low mortgage rates have been the main catalyst in the record setting home sales pace so far this year,” according to Zumpano. “By historical standards 6.31 percent is low, to be sure, but a rising interest rate environment could dampen the near-term outlook for the housing market. The consecutive declines in construction spending and the fall in payroll jobs also hint at declining housing activity.”

Despite these signs of a slowdown, Zumpano said, the housing market is still on track to set another record in 2002.

The Alabama Real Estate Research and Education Center is part of The University of Alabama’s Culverhouse College of Commerce and Business Administration. The UA business school, founded in 1919, has been recognized repeatedly during the 1990s for offering a high-quality, cost-effective education.