Alabama Housing Market Shows Continued Strength, According to Stats from UA’s Real Estate Center

TUSCALOOSA, Ala. – Alabama’s housing market showed continued strength in April with 5,352 units sold, up 7.23 percent over the previous month, according to figures released by the Alabama Real Estate Research and Education Center at The University of Alabama.

April’s home sales number is the second highest monthly figure on record after June of 2004, in which 5,739 units were reported sold, the center reported. According to Dr. Leonard V. Zumpano, director of the center, the average selling price remained relatively unchanged at $143,374 but represents the second highest figure on record.

The average number of days a home was on the market fell six days to 129 while the months of supply, at the current sales pace, fell slightly to a tight 4.5 months in April.

The biggest percentage increases in home sales were reported by Covington, Huntsville and Selma, all of which reported more than 33 percent increases in the number of homes sold in April. The biggest gains in average home sales price were seen in Covington, with a 41.9 percent increase, Gadsden with a 17.4 percent rise, and Marshall County, with a 21.0 percent jump in average selling price.

“All of the monthly changes point to a very robust housing sector for the state,” Zumpano said. “The real strength in the sector can be seen in the year-to-date figures, which provide a better gauge for trends in the market than the relatively volatile month-to-month figures.”

At 17,547 units, April year-to-date home sales are up a full 9 percent over the same time last year. Average selling price year-to-date is up a whopping 18.2 percent at $142,339. The average number of days a home is on the market is down a full 16 days to 137. Year-to-date residential construction spending is up 15.9 percent across the state to $1.72 billion, according to McGraw Hill Construction reports.

The sharp increase in construction is a result of the tight supply of homes available for sale and shows that builders are trying to keep up with the strong demand for housing in the state, Zumpano said.

The state unemployment rate fell to a preliminary figure of 4.4 percent in April, down from 4.7 percent in March, according to the Alabama Department of Industrial Relations. The expanding employment in Alabama is tracking the national improvement in the employment situation and is a good sign for future home sales, Zumpano noted.

Existing home sales at the national level hit record highs with 7.18 million units sold on an annualized, seasonally adjusted basis, according the National Association of REALTORS®. This represents a 4.5 percent gain over March’s respectable 6.87 million unit sales rate. The median sales price of an existing home was $206,000, up 6.7 percent from the previous month, and is a full 15.1 percent higher than April of 2004. The months of supply, based on the current sale pace, rose slightly to a still very tight 4.2 months.

New home sales also hit a record high in April with 1.32 million units sold (seasonally adjusted, annualized rate) according to the Census Bureau. The median price for new homes was $230,800, up 3.8 percent over the same time last year.

Housing starts jumped 11.0 percent to 2.04 million units (seasonally adjusted, annualized rate) in April after a strong decline in March. Building permits also rose 5.3 percent to 2.13 million. The decline on both housing starts and building permits in March was likely a result of the poor weather across the country during the period, but also offered some evidence that builders were becoming more cautious as worries related to the market grew, Zumpano said.

“The strong gains in April tend to support the idea that March’s decline was more the result of poor weather than of growing concern on the part of builders,” Zumpano explained. The continued strong gains in home prices and home sales have fueled speculation of a national housing bubble that may be on the verge of popping.

“While there likely are some localized housing market bubbles in California, parts of Florida, and the Las Vegas Metro area, where home price appreciation has far outstripped income growth, the idea of a national housing bubble just doesn’t hold much water,” Zumpano said. “The strong home price appreciation seen over the last year has certainly attracted some speculators, but the strength in the housing sector continues to be based on identifiable fundamentals.”

A strengthening employment situation has given more people jobs (2.17 million net payroll jobs created so far in 2005) and has brought modest rises in income while interest rates continue to sit at historical lows.

This has had the net effect of offsetting the rising home prices and has kept housing affordable so far this year, according to Zumpano.

Interest rates are still the main factor driving the housing sector, Zumpano said. After increasing some in March, average 30-year fixed rates have fallen to 5.75 percent in the beginning of May, down from over 6 percent in March, according to Freddie Mac. Short-term rates, however, have been increasing, and that may cause a shake out in some over-heated markets, Zumpano noted.

“In some high-cost locations there has been heavy usage of short-term, variable rate, interest-only loans,” Zumpano said. “It is in these same markets that mortgage foreclosure rates have been increasing. In fact, Foreclosure.com reported that foreclosure rates rose in 47 states in March, with the rates in Florida, Texas, and Colorado more than twice the national average. For many recent home-buyers, who are just making ends meet, any unanticipated expense, loss of job, or illness could put them over the edge.”

“If short-term rates continue to increase, or should they spike because China and other Asian countries lose their appetite for U.S. government securities, we could see a few bubbles break,” Zumpano said.

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.

(Steven J. Stelk, research assistant, contributed to this report.)

Editors note: Chart accompanies release

Visit us on the Web at www.arerec.cba.ua.edu