Housing Strong in State, but Shows Weakness Nationally, According to UA Real Estate Center

TUSCALOOSA, Ala. – Existing home sales on the national level fell 5.6 percent in March to 5.53 million units on a seasonally adjusted, annualized basis, according to the National Association of REALTORS®, but at the state level, existing home sales surged 16.38 percent to 3,496 units, according to figures released by the Alabama Real Estate Research and Education Center at The University of Alabama.

“Much of the continued decline nationally can still be attributed to the heavy snowfall experienced in many parts of the country in February,” said Dr. Leonard Zumpano, director of the Center. “There tends to be a one-month lag from the signing of a contract and the actual closing, which is then recorded as an existing home sale. Despite the last two months of declines, the first quarter total number of units sold is the highest on record, setting the stage for another record setting year.”

According to Zumpano, more homes were put on the national market in March, which pushed supply up to 5 months from 4.4 months in February. The slight softening in the housing sector relieved some pressure on skyrocketing home prices in March. The median home price of an existing home in the U.S. was $163,100, or 6.5 percent above March of 2002.

“This is still a strong figure, but much lower than the near 10 percent rate of appreciation the housing market has been posting during the past year,” Zumpano said.

New home sales jumped 7.3 percent in March, hitting 1.012 million units, according to the National Association of REALTORS®. Both January’s and February’s totals were revised up to 975,000 units and 943,000 units, respectively. The strong boost in March and the upward revisions for January and February have relieved some fears of a slowdown in the housing sector, Zumpano said.

Zumpano said housing starts also rebounded strongly in March, posting an 8.27 percent gain to 1.78 million units. The total number of permits issued in March fell 7.0 percent to 1.685 million units. Most of the decline was in multifamily units, however, which followed a surge in multifamily starts in January. In contrast, residential permits only dropped by 1.0 percent, “which is likely a result of month-to-month fluctuations rather than signaling any fundamental weakness in the market,” Zumpano said.

In April the unemployment rate rose to 6 percent, up from 5.8 percent in March, Zumpano said. Employers reduced payrolls for the third straight month, cutting 48,000 jobs in April, following a 125,000 cut in March. On the plus side, the Consumer Confidence Index bounced back following the end of major hostilities in Iraq, to 81.0 in April, up from 61.4 in March.

“The Consumer Price Index and the Producer Price Index both increased in March, but the increases were almost completely caused by rising energy costs,” Zumpano said. “Oil prices have subsided in recent weeks, which should keep inflationary pressures in check, at least in the near term.

“With little evidence of inflation, mortgage interest rates continued to fall in March, according to the Federal Housing Finance Board. The average effective rate on a conventional 30-year mortgage fell to 5.79 percent from 5.92 percent in February. Continuing fear of a sluggish economy has investors moving back into the bond market, triggering another round of reductions in mortgage rates in May, following a slight run up during April, an encouraging sign for the nation’s housing markets.”

At the state level, Zumpano said, “existing home sales surged 16.38 percent to 3,496 units. This brought the year-to-date total to 9,054 units, or 11.75 percent higher than the first three months of 2002. Home sales have been very strong so far this year in Alabama. The increased sales pace pushed supply down to 7.63 months at the current pace from 8.82 months in February. Unlike at the national level, however, the average home price has remained in check, increasing only 1.49 percent year-to-date over March of 2002.”

According to Zumpano, six areas tracked by AREREC posted better than 25 percent gains in number of homes sold in March: Birmingham, Lake Martin, Mobile, Montgomery, Muscle Shoals, and Phenix City. “These areas accounted for much of the increase in the number of homes sold as only 11 areas, or just over half, reported gains in the number of homes sold,” Zumpano said.

Zumpano said Housing Affordability hit a record level for the first quarter of 2003, helping fuel the record setting sales pace. “Rising incomes, falling interest rates and low home price appreciation all helped to pull the Alabama Housing Affordability Index to a record 197.6.

“An index number of 100 means that a family earning the state’s median income has just enough buying power to qualify for a mortgage loan on the state’s median priced, single-family home. The higher the index number, the more affordable the housing,” Zumpano said.

An HAI of 197.6 means that Alabama families earning the statewide median income of $46,794 had nearly twice the income needed to qualify for a loan on the statewide median priced home, which in the first quarter was priced at $103,957.

Looking forward, residential construction spending was up 18.96 percent to $747 million year-to-date March 2003, according to F.W. Dodge Reports. Only two areas in the state reported declines in residential construction spending: Anniston and Huntsville.

“The steady increase in spending bodes well for the housing sector going forward. So far, the very low mortgage interest rates seem to have offset the negative effects of a sluggish economy and the recent increases in unemployment. Further erosion in the pace of economic activity could ultimately translate into a slow down in the housing sector,” 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.