Where’s the Housing Market Slowdown?

TUSCALOOSA, Ala. – The market for existing homes in Alabama bounced back sharply in May from April’s decline, despite the Federal Reserve’s half point increase in interest rates.

According to figures released by the Alabama Real Estate Research and Education Center at The University of Alabama, the number of homes sold in May, as reported by local area associations of REALTORS®, was up almost 19 percent from the April number.

May’s average selling price rose to $124,183. This was a staggering $8,476, or 7 percent, rise above the average selling price reported a month earlier. Although average days on the market increased in May, selling time is still shorter than one year ago at this time.

For the entire United States, existing home sales also rose, increasing by a healthy 4.3 percent as prices continued to edge up. “These numbers suggest a very strong market for existing single-family homes here in Alabama, as well as in other parts of the country,” said Dr. Leonard Zumpano, Executive Director of the Alabama Real Estate Research and Education Center.

The increase in the number of homes sold in Alabama during May was broad-based, up in 16 of the 18 reporting areas within the state. The same was true of average selling price, which also increased in 16 of the 18 locations that reported housing price data to the Alabama Real Estate Research and Education Center. Average days on the market lengthened in nine locations and declined in seven of the 16 locations that reporting selling time.

“We have added a new feature to our monthly housing report,” Zumpano said. “Beginning this month we are reporting the number of existing single-family homes for sale. As we monitor housing inventory over time and add new monthly entries to this data series, we will be able to provide insights into how the supply of existing homes impacts housing prices and selling time. We will also be better able to identify trends taking place in the market.

“In April the number of existing homes sold in Alabama declined for the first time this year. We were hesitant then to call this the beginning of a down turn in the market because one month does not make a trend. We were also aware that the housing market has confounded and baffled analysts who have been predicting a slowdown in the housing market for months. The April decline in existing homes sales was interesting, however, because it predated the Federal Reserve’s 50 basis point increase in interest rates, the largest single upward adjustment of the 6 rate hikes. So it was not surprising that many analysts expected May home sales, both new and existing, to fall. And, in fact, new home sales declined in April and fell, for the second consecutive time, again in May.”

The Department of Commerce reported that new home sales fell by 0.2 percent in May to a seasonally adjusted annual rate of 875,000 units, the slowest pace since last September. Zumpano said other signs of an economic slowdown include slower growth in retail sales, falling construction spending and a slowing of manufacturing output. “Job creation also posted its first monthly decline in May, the first drop in the last two years. The only economic indicator that has yet to signal a slowdown is existing home sales, which make up approximately 80 of the residential housing market. The question is why the existing housing market remains so strong in the face of rising mortgage rates and an apparent slow down in the economy.”

Zumpano said some analysts point to last month’s .5 percent increase in interest rates as the trigger for increasing existing home sales. Fearing additional credit tightening, more people decided to purchase homes in May, hoping to lock in mortgage loans before rates rose again. He said other analysts have pointed out that inventories of homes for sale in many parts of the country have been falling over the past few months. When the supply of available homes falls, competitive bidding raises prices.

“While the existing housing market may indeed slow over the next few months, we do not foresee a major shakeout in this market so long as the economy remains strong,” Zumpano said. “Despite recent evidence of a slowing economy and growing concern over the effects of rising gasoline prices, economic fundamentals remain strong. Now that the Federal Reserve has decided to hold interest rates steady, mortgage loan rates should remain relatively affordable, helping to maintain reasonably high housing market activity.”

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 state housing reports monthly and quarterly.