Existing Home Sales Post Another Double-Digit Increase, According to UA Housing Research and Education Center Stats

TUSCALOOSA, Ala. – Unstoppable? It seems like nothing can stop Alabama’s housing market, not even rising mortgage rates, higher gas prices, or an underperforming U.S. economy.

According to figures from The University of Alabama’s Real Estate Research and Education Center at the Culverhouse College of Commerce, for the second consecutive month existing home sales posted a double digit increase. Statewide, according to the center, used home sales rose an incredible 29.4 percent from February, a month when home sales rose 15 percent over the previous month.

This increase occurred despite the fact that the 30-year fixed mortgage rate hit an eight-month high during March and the price of a barrel of oil was setting new records. So far this year, homes sales are 7.7 percent ahead of sales levels for the same time last year, and 2004 was a record setting year.

Alabama’s average selling price increased from $137,971 in February to $142,267 in March, a solid 3 percent increase over last month and a whopping 14.7 percent increase over the average sales price reported for March of last year.

With the exception of January 2004, this is the highest average selling price ever recorded by the Alabama Real Estate Research and Education Center. Also, the year-to-date average selling price is $141,994 through the first three months of this year compared to $119,599 year-to-date in March 2004.

“All the other housing market stats continue to point to a very strong market and one that is continuing to expand,” said Dr. Leonard V. Zumpano, director of the UA center.

Zumpano said that during March, average days on the market decreased from 137 to 135, while the total number of homes on the market decreased from 24,122 to 23,817.

“At the current absorption rate, this represents a 4.7 month supply of existing homes,” Zumpano said. “This compares to a 6.3 month supply in February, a very strong indicator that the growth in demand continues to outstrip the increase in available supply.”

Within Alabama, the number of existing homes sold increased in 18 of the 21 areas traced by the Real Estate Research Center. Home sales decreased in only two locations – Covington and Gadsden, and remained unchanged in Monroe County. “Interestingly, every area reporting an increase in existing homes broke the record high sales levels for the year, Zumpano said. “Eight of these areas also set new 2005 records highs for average selling price.”

For the Southern region of the country, existing home sales increased by 0.4 percent from 2,560,000 to 2,570,000. Southern home sales are 4.9 percent higher this March than they were in March 2004. The South’s average selling price increased from $211,000 in February to $220,000 in March. This represents a 10 percent increase compared to March 2005.

At the national level existing home sales increased by 1 percent, from 6,820,000 in February to 6,890,000 in March. So far this year existing home sales are 4.9 percent higher than they were through March of 2004.

The national average selling price also increased from $241,000 in February to $249,000 in March; a 3.3 percent year-to-date increase. The current average selling price is 11.7 percent higher than it was at the same time last year.

The new home market in the U.S. showed surprising strength during March, Zumpano said, increasing by 12.2 percent and setting a new record high. The Commerce Department reported that new single-family homes sales rose to 1.431 million units last month, well ahead of economist’s forecasts. In the first three months of the year new home sales are running 9.2 percent ahead of the same period in 2004.

New home sales increased in every region in the U.S. except the Northeast; the decline of 8.9 percent in sales has been attributed to the poor weather the region experienced during March.

The national median sales price for new homes declined in March to $212,300, down from $234,100 in February. At the same time, the supply of new homes for sale fell 16.3 percent from February, the largest reduction in supply since February 1996.

There is one area of concern, however, according to Zumpano.

“In March housing starts fell by 17.6 percent marking the sharpest decline in more than 14 years,” he said. “Building permits were also down during the month, but by a more modest 4 percent.

“Part of the explanation is the poor weather that hit parts of the country last month. It is also worth pointing out that housing starts were at a 20 year high in February. However, concern has also been raised that builders are becoming more cautious because of increasing speculator interest in the housing market.”

Overall, the housing sector looks very robust, Zumpano said. He said housing demand should continue to remain strong in Alabama over the near term and there is no evidence of a “housing bubble” in the state, although the market in Baldwin Country bears watching.

Other parts of the country also appear to be seeing an increase in speculative activity which makes these areas much more prone to economic changes, Zumpano said. What are some of the danger signs? There has been a significant increase in the use of variable rate, interest-only loans, he said. This development in conjunction with more aggressive lending and relaxed underwriting standards could make the housing market increasingly sensitive to an increase in interest rates. The National Association of Realtors reported that the median down payment for first-time home buyers in 2004 was only 3 percent, half what it was in 2003.

LoanPerformance, a mortgage data company, reports that about 33 percent of all new home loans are interest-only, and in some high cost areas the percentage is even higher. In San Diego, for example, more than 67 percent of new mortgage loan originations are interest-only.

The use of these types of loans has been compared by some analysts to renting a home with an option to buy, as there is no equity increase due to loan amortization. Many of these borrowers are using the interest-only loans to buy more expensive homes than they could otherwise afford with fully amortizing loans, analysts say.

With little or no money down there is little incentive to continue paying the loan should the borrower end up in financial difficulty, Zumpano explained.

“While these factors could contribute to a market correction in the short or near-term, the long-term housing market is driven by demographics, all of which point to a strong residential market through 2010,” Zumpano said.

Editor’s Note: chart accompanies release.