State Housing Market Picks Up in October, According to UA Center

TUSCALOOSA, Ala. – The Alabama housing market showed signs of health in October after September’s slowdown, according to the Alabama Real Estate Research and Education Center at The University of Alabama.

Total homes sold ticked up 1.5 percent to 2,611 units, while average selling price fell 5.6 percent to $116,417. Average days on the market increased 7 percent to 153 days. Supply remained relatively unchanged at 10.7 months from September’s 10.8-month supply.

“The drop in average selling price is not as concerning as it may first appear because it came on the heels of a 9 percent increase in September,” said Dr. Leonard Zumpano, director of the center. “Historically, $116,417 is a good number. In fact, it is 3.4 percent higher than October of 2000. Year-to-date average selling price through October 2001 is up 1.5 percent to $117,905 from $116,176 through October 2000.”

Thirteen of the 20 reporting counties reported an increase in number of homes sold. Lee County and Dothan were the two biggest movers from September to October with Dothan selling 29.6 percent more homes (from 54 to 70) and Lee county selling 31.3 percent more homes (from 48 to 63). Baldwin County saw a huge increase in number of homes sold over October 2000 with a 36.5 percent increase to 187 from 137. While 12 of the 20 reporting areas reported declines in average selling price, the size of the decline can be attributed mostly to Lake Martin and Selma with drops of 29.8 percent and 51 percent, respectively. The same two areas saw the biggest increase in average days on the market with Lake Martin reporting a 28.5 percent increase to 248 days and Selma reporting a 41.6 percent increase to 262 days.

“Despite the mixed signals of the Alabama housing market, there are some real signs of its continuing health,” Zumpano said. “Year to date, the number of homes sold is up to 29,516, or 2.6 percent above last year’s total of 28,778 at this time. Average selling price is up 1.5 percent year-to-date over last year. Furthermore, the increase in number of homes sold between the months of September and October is a rare occurrence. Since 1995, it has happened only twice – once in 1996 and again in 1997. October is traditionally when the housing sector begins to slow down for the winter, so the slight increase in activity is a good sign. Mortgage rates were at their lowest during the month of October, likely helping fuel the market.”

Zumpano said the near term outlook for the Alabama housing market remains uncertain. The unemployment rate in Alabama jumped to 5.3 percent in October from September’s rate of 5.0 percent. Areas that experience continued declines in unemployment will likely see further erosion in the housing markets as well, he said.

According to the National Association of REALTORS®, existing home sales nationwide rebounded 5.5 percent in October to 5.17 million units. This follows last months 11.5 percent plunge. The national average selling price declined 2.0 percent to $181,600, while supply fell 15.1 percent to 4.5 months. “These are mixed signals from the housing sector,” Zumpano said. “A rise in the number of homes sold coupled with a tightening of supply would generally cause average selling price to rise.”

In other housing areas the data is not so mixed, according to Zumpano. New home sales decreased 1.4 percent to 864,000 in October. Construction spending was also down 0.4 percent, while housing starts declined 1.0 percent to 1.552 million units. Building permits, considered a leading indicator of housing activity, fell 3.3 percent in October to an annual rate of 1.47 million units.

Mortgage rates have been on the rise over the last month as fears of a recession started to take hold. According to the Mortgage Bankers Association, the average 30-year, fixed rate mortgage was at 6.98 percent in November, up from 6.64 percent in October. Consequently, the index of mortgage loan applications-a measure of loan purchases and refinances-decreased 8.2 percent to 905.1 for the week ending Nov. 23. The Federal Reserve signaled its’ intent to continue fighting recession forces by cutting interest rates for the eleventh time this year, lowering the Fed Funds rate to 1.75 percent.

“The overall economy shows some evidence that it may be bottoming out, but the employment situation continues to cause concern,” according to Zumpano. He said the United States lost 331,000 non-farm payroll jobs during November, causing unemployment to jump 30 basis points to 5.7 percent. Consumer confidence also took a plunge to 82.2 in November from 85.3 in October and 97 in September.

This was caused mostly by a 31.9-point drop in the Present Situation Index to 93.5 over the two-month period. The drop in consumer confidence between October and November came after the National Bureau of Economic Research declared that a recession began in March of 2001. The Commerce Department’s revised drop in Gross Domestic Product of 1.1 percent for the third quarter from the preliminary number of 0.4 percent would seem likely to add consumer’s uneasiness in the coming months, but there have been signs that consumer confidence may be on the rise, Zumpano said.

Existing home sales edged up in October, while leading indicators such as building permits slipped, indicating that the near term future of the housing sector remains cloudy, Zumpano said. “The consensus among forecasters is that this recession will be short and shallow. When unemployment falls and consumer confidence picks back up, look for an identifiable rebound in housing activity.

“There is likely to be a rising interest rate environment for a period as the economy recovers, in spite of the Fed’s actions. That being the case, there may not be the record setting pace set in 1999 through 2000, but an improvement in the housing sector is certain to follow when the economy picks up,” he said.

Editor’s note: The in-state housing statistics reported here refer only to existing home sales and are obtained from data provided by local area associations of Realtors. Consequently, these numbers do not include new home sales, or for-sale-by-owner transactions, and hence, are reflective of basic housing market trends and not indicative of all the monthly housing market activity that take place within the state.

The Alabama Real Estate Research and Education Center, located in the Culverhouse College of Commerce and Business Administration at The University of Alabama, is a state of the art comprehensive research facility designed to support Alabama’s real estate community and the state’s overall economic development efforts. Visit us on the web at arerec.cba.ua.edu.