Sales of Existing Homes Reach Record Levels in State, Nation, According to UA’s Real Estate Research Center

TUSCALOOSA, Ala. – Sales of existing homes in Alabama jumped 16.6 percent in December to 3,891, contributing to a record number in 2003 of 47,351 houses sold, according to figures from the Real Estate Research and Education Center at The University of Alabama. The December increase followed a small decline in November.

The average selling price rose 4.3 percent to $124,397 in December, and the supply of existing homes fell to a tight 6.5 months, which may help explain the sharp increase in home prices in December, according to Dr. Leonard Zumpano, director of the UA center.

The 2003 record in home sales represents a growth of 21.2 percent over the record setting sales figure of 39,065 in 2002. Average selling price increased 4.8 percent over the 12-month period, outpacing inflation by a wide margin, according to Zumpano. For the year, the average number of days on the market fell from 155 days in 2002 to 148 days in 2003.

“Basically all the housing statistics point to a very strong housing market going into 2004,” Zumpano said.

Nineteen of the 21 one areas tracked by AREREC set records for the number of homes sold in a one-year period. The two exceptions were Covington, which only began reporting in May 2003, and Jackson County.

“Some areas experienced incredible gains in home sales,” Zumpano said. He noted that Baldwin County and Selma reported 43.2 and 41.6 percent increased, respectively, in the number of homes sold compared with 2002. Cullman, Jackson, Monroe, Montgomery, and Walker Counties, along with Huntsville, Lake Martin, and Phenix City, all reported a better than 20 percent growth in the number of homes sold in 2003.

A number of areas also experienced strong home price appreciation in 2003. Walker County reported a 10.8 percent growth in average selling price while Lake Martin reported a 16.5 percent increase over 2002. Dothan, Muscle Shoals, Phenix City, and Lee and Montgomery counties all experienced home price appreciation greater than 5 percent.

Continued low interest rates and a recovering economy allowed homebuyers to buy in record numbers in 2003, Zumpano said, “which has been an incredible year for the housing sector. The low interest rates made housing more affordable for first time homebuyers and allowed current homeowners to step up to larger homes.”

Existing home sales set a new annual record at the national level as well. The National Association of REALTORS® reported 6.1 million units sold in 2003, soundly beating last year’s record of 5.6 million. The median sales price rose 6.7 percent from December 2002, nearly four times the rate of inflation.

Just as in Alabama, mortgage interest rates under 6 percent and a relatively stable employment situation, which is typical in the early stages of a recovery, helped push homes sales to a new record. Although new home sales at the national level fell off sharply in December, down 5.1 percent, they were up 0.8 percent over last year, remaining above the one million unit mark at 1.06 million.

New residential construction in Alabama also rose, according to the center’s statistics. Statewide residential construction spending posted a 20.8 percent annual gain in 2003 of $3.23 billion, according to McGraw Hill Construction. Residential construction spending includes both multi-family and single-family homes.

Not surprisingly, Zumpano said, given the strong state-wide figure, the major metro areas all reported strong increases in residential construction spending. The Birmingham Metro Area reported a 28.6 percent growth in spending, Huntsville reported a 22.6 percent growth, Montgomery saw a 22.2 percent increase, and Mobile experienced a 12.3 percent increase.

The surge in construction spending is likely in response to the increasingly tight supply of existing homes, according to Zumpano. The employment situation improved marginally in December, with an increase of 700 non-agricultural, payroll jobs, according to the Alabama Department of Industrial relations. The unemployment rate held steady for the state at 5.8 percent, but fell in every major metro area tracked by the department. Increased residential construction spending and a healthy employment situation are both positive signs for future home sales.

The final month of 2003 continued to show signs of economic recovery. The employment situation improved, albeit only slightly, but it was the fifth consecutive month of job gains. Although the Consumer Confidence Index dipped slightly to 91.3, the future expectations component rose 2.8 points. Retail sales increased for the second straight month, lead by automotive and parts sales, which also indicates consumers are increasingly confident about the future.

The average effective interest rate, which has remained below 6.0 percent all year, dipped to 5.77 percent in December from 5.87 percent in November, according to the Federal Housing Finance Board.

The Consumer Price Index, the most widely used gauge of inflation, rose 0.2 percent in December and was up only 1.9 percent for the year. The Producer Price Index, however, rose 0.3 percent in December and is up 3.7 percent from December 2002.

Moving into 2004, most forecasts call for mild increases in interest rates over the next 12 months as the economic recovery and the record budget deficit bring some inflationary pressure. The Mortgage Bankers Association recently said it expects 30-year, fixed rate mortgage rates to reach 6.3 percent by the end of 2004 and 7.1 percent by the end of 2005. The Federal Reserve decided to leave interest rates alone at its most recent meeting Jan. 28, signaling its intent to keep rates low in the near term.

“Mild increases in mortgage interest rates, tempered with an improving employment situation and favorable demographics, should continue to push home prices higher but bring the blistering pace of home sales and home price appreciation down to more sustainable levels in 2004,” 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.