Existing Home Sales Drop; Prices Rise, According To UA Center

TUSCALOOSA, Ala. — Existing home sales fell sharply in Alabama during July, down 18 percent from June, according to figures released by the Alabama Real Estate Research and Education Center at The University of Alabama.

“Although this represents a sizeable month-to-month decline in home sales, on a year-to- date basis, the pace of homes sales is about the same as last year, which was a very good year for the housing market,” said Dr. Leonard Zumpano, director of the Center. The number of existing homes sold through July was 20,008, about 200 fewer sales compared to the same time last year.

Despite the fall in home sales, existing home prices rose by more than $8,000 between June and July, a 7 percent increase in one month, according to the Center. The average selling price in July was $121,342, the second highest price ever recorded in Alabama. The record for existing home prices was set in May of this year, when the average statewide existing home price reached $122,058.

“The explanation for this apparent anomaly is that the recent increases in mortgage interest rates have had their greatest impact at the lower-end of the market, primarily impacting potential first-time homeowners,” Zumpano said. “More affluent households or move-up buyers who already have substantial equity appreciation from previous home purchases are much less sensitive to financing costs.”

Average selling time, another indicator of the strength of the existing home market, remained virtually unchanged from June at 143 days. On a year-to-date basis, existing homes are actually selling faster than last year at this time, 145 days compared to 150 days. The supply of housing, as measured by the number of homes for sale, also remained virtually unchanged from last month.

At the national level, existing home sales posted their biggest decline since January. The National Association of Realtors® reported that U.S. existing home sales fell 9.8 percent in July. This translates into a seasonally adjusted annual rate of 4.79 million home sales, down from 5.31 million in June. The July numbers were well below Wall Street forecasts of 5.12 million sales.

Just as in Alabama, existing home prices increased across the nation in July. The National Association of Realtors® reported that the median home sale price rose to $143,300, the highest price for existing homes on record and an increase of more than $3,000 from June. The association reported that the inventory of homes for sale also increased in July.

Within Alabama, homes sales fell in 15 of the 20 reporting areas, remained unchanged in Lee County, and rose in Gadsden, Jackson County, Lake Martin and Morgan County. Existing home prices rose throughout most of the state, declining in only 6 locations. The inventory of homes for sale rose in 11 of the 20 of reporting areas, remained virtually unchanged in five locations, with only five local area associations of Realtors® indicating a fall in local supply.

Zumpano said one interpretation of the housing numbers is that the six consecutive increases in interest rates by the Federal Reserve have finally slowed the housing market.

“Certainly, the last one-half percent increase in May has put a damper on the existing home market,” he said. “Since it generally takes about two months for a change in mortgage rates to be reflected in home sales, the July decline is not particularly surprising. Our data suggests that most of the decline in existing home sales was confined to the lower end of the market, taking lower income buyers out of the market, if only temporarily.

“Interestingly, the new home market does not seem to have been effected as new homes sales soared in July, increasing by almost 15 percent. If these figures hold up and are not revised downward in the months to come, this is the largest increase in new home sales in seven years.”

With the recent decision by the Federal Reserve to hold the line of interest rates, mortgage rates have been declining rapidly. After reaching a five-year high of 8.64 percent in May, mortgage rates on 30-year fixed rate mortgage loans are now in the 7.75 percent range.

“Given the virtual absence of inflation, rising labor productivity, and the strong growth in wages and salaries, housing market prospects for the second half of the year look very promising,” 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.