State’s Housing Market Shows March Strength, According to UA’s Real Estate Center Stats

TUSCALOOSA, Ala. – The Alabama housing market showed remarkable strength in March with 4,672 homes sold, up 60.9 percent over the previous month, according to figures from the Real Estate Education and Research Center at The University of Alabama.

The center reported that the average selling price increased 3.6 percent to $124,010 while the average days on the market fell eight days to 147. Supply fell to a tight 5.6 months in March, down from 7.3 months in February. Year-to-date, home sales are up 24.8 percent to 11,358 while average selling price is up less than one percent to $119,598.

Baldwin and Calhoun Counties as well as Phenix City all set records for the number of homes sold in one month. Baldwin County reported 629 homes sold in March, Calhoun County reported 125, and Phenix City reported 100 homes sold.

“Despite the relatively large increase in average selling price across the state in March, prices by area were not up across the board,” said Dr. Leonard Zumpano, director of the center. “In fact, average selling price fell in 10 of the 21 reporting areas, indicating how volatile selling price was for the month. Taken as a whole, however, a sharp increase in home sales, an increase in the average selling price, and a drop in the number of days on market all point to a strong housing market in the state.”

Zumpano said residential construction spending was up 43.0 percent to $1.08 billion across the state year-to-date March 2004. Only one area, Dothan, reported a decline in spending. Construction figures are provided by McGraw-Hill Construction.

The unemployment rate in Alabama increased to 5.9 percent in March from 5.6 percent in February, according to the Alabama Department of Industrial Relations. The jobless rate fell or stayed the same in all but two major metro areas, Birmingham and Gadsden.

Sales of existing homes at the national level jumped 5.7 percent to 6.48 million units on a seasonally adjusted, annualized basis, according to the National Association of REALTORS® (NAR). This represents the second highest sales figure on record. Median sales price increased 3.6 percent to $174,100. The median home price has risen 7.4 percent over the last 12 months. Supply remains tight at 4.4 months.

New home sales surged 8.9 percent to a new record high of 1.228 million units on a seasonally adjusted, annualized basis, according to the Commerce Department. Housing starts, a leading indicator for home sales, rose 6 percent in March to 2.007 million units (seasonally adjusted, annualized).

“It is worth noting that multi-family housing starts have been trending up for the last few months. This is likely builder response to an improving employment situation with the hope that young families will begin to move out on their own in larger numbers,” Zumpano said.

“The employment situation has been the one economic indicator that has lagged behind in 2004, which is not at all surprising in a recovery period,” Zumpano said. “The March figures, however, reversed this trend. The Bureau of Labor statistics reported that 308,000 payroll jobs were created in March. Due to a large number of people entering the labor force, however, the unemployment rate inched up to 5.7 percent.

“Consumer Confidence fell slightly in March to 88.3, possibly due to terrorist attacks in Spain and continued violence in the Middle East. Most economists are forecasting the index will rise with the recovering labor market.”

Inflationary pressure is becoming a concern now that the economy seems to be getting into gear, according to Zumpano. The Commerce Department estimated that the GDP increased 4.2 percent in the first quarter of 2004, slightly lower than the expected 5.0 percent rate. The Consumer Price Index rose 0.5 percent in March and is up 1.7 percent over the last 12 months. Core prices (excluding the volatile energy and food categories) are up 0.4 percent for the month and 1.6 percent over the last 12 months.

“While a figure of 1.6 percent is not particularly troubling, the upward movement in prices is beginning to hint at building inflationary pressure,” Zumpano said. The Commerce Department’s Price Index for Consumer Spending (PCE) is another popular gauge of inflation. The PCE increased 3.2 percent in the first quarter of 2004, hinting at much stronger inflation than the CPI. The Chain Price Deflator, yet another gauge of inflation, increased to 2.5 percent in the first quarter.

“The Federal Reserve may make a decision about raising interest rates in May, Zumpano said. “If the Fed doesn’t act at this meeting the consensus opinion is that an expanding economy and growing federal budget deficit will force up short-term interest rates later in the year. In fact, the market has already anticipated such action and long-term mortgage rates have already begun to rise.”

Zumpano said the robust housing market is once again a direct result of a relatively strong economy and historically low interest rates. Average effective interest rates actually fell in March, hitting 5.47 percent from 5.73 percent in February. Interest rates have been increasing in recent weeks, at least in part due to inflation concerns.

The NAR is forecasting that inflation will continue to gradually build as the economy builds steam, which will push mortgage interest rates up. As interest rates rise in the coming months, housing affordability will erode and home sales should return to more sustainable levels.

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 for offering a high-quality, cost-effective education.