Alabama Housing Market Remains Strong Despite Sign of National Slowdown, According to UA Real Estate Center

TUSCALOOSA, Ala. – Existing home prices in Alabama reached a record in May of $160,720, according to the Alabama Real Estate Research and Education Center at The University of Alabama.

For the fourth consecutive month existing home prices rose, after a sharp decline in January. Existing home sales also rose in May to 5,695 after a small decline in April, the only month this year that sales fell.

“Despite rising interest rates, high oil prices and flagging consumer confidence, we are fast approaching another record year for housing. Home sales set a record in June of last year when 5,905 properties sold,” said Dr. Leonard Zumpano, director of the real estate center.

The number of homes listed for sale increased slightly to 32,781 units in May. This is an increase of 32 percent compared to last May, which translates into an almost 6 month supply of existing housing at the current sales rate. Year-to-date, the number of homes put on the market is 151,381 compared to only 120,218 year-to-date 2005. Despite this large increase in the supply of available homes, days on the market has remained remarkably stable, Zumpano said.

Within Alabama, home sales in May increased in 15 of the 21 areas tracked by the Alabama Real Estate Research and Education Center. Sales fell in only five locations and remained unchanged in Walker County. Existing home prices rose in 11 locations, declined in nine and remained unchanged in one metro area compared to last month. Tallapoosa County/Lake Martin set new records for the number of sales and selling price. In addition, the number of homes listed increased in 15 of the 21 reporting areas.

The Baldwin County market seems to be firming up after a rough second half in 2005, Zumpano said. “Prices have been relatively stable for the first five months of the year, in the neighborhood of $295,000, but they are below the record of $344,656 set in February of 2005,” Zumpano said.

Year-to-date sales are still well behind the pace set in 2005 (1,470 units were sold through May of 06 compared to 2,331 through May of 2005), and the inventory of homes has increased to a 19-month supply at the current rate of sales, according to Zumpano.

At the national level, existing homes sales fell slightly in May, down 1.2 percent on a seasonally adjusted basis. Home sales were down 6.6 percent compared to May 2005. The average price of an existing home at the national level rose 2.2 percent in May to $275,000, while the median existing home price for all housing types came in at $230,000 in May of this year compared to $217,000 for the same time last year. Total existing housing inventory levels rose 5.5 percent in May to 3.6 million homes, a 6.5 month supply at the current sales pace.

In contrast, the number of new homes on the market fell 0.7 percent to 556,000 units last month, down slightly from the record inventory of 560,000 units set in April. The inventory of new homes fell from 5.8 months in April to 5.5 months in May.

The Commerce Department reported that new home sales increased an estimated 4.6 percent to a seasonally adjusted annualized rate of 1.234 million in May. This represents the third consecutive increase in new home sales. Although the sale of new homes was running at the fastest pace since December, sales are down 5.9 percent from May of 2005 and down by 9.7 percent from the record sales pace of 1.37 million set in July of 2005. Year-to-date new home sales are down 10.9 percent.

Although a number of builders have said they were cutting prices to boost sales, the median price of a new home was $235,300 in May, up 3.1 percent in the past year, Zumpano noted. This represents the smallest year-over-year price gain since December 2003.

“It would appear that the housing market is continuing to expand in most locations within Alabama, with both prices and sales levels up,” Zumpano said. “There seems to be a shift in demand from higher-cost markets to locations where price appreciation has been more modest, as buyers seek more affordable housing. This appears to be the case in Alabama. Add the strong labor market in Alabama and all the ingredients are in place for another strong year for housing.”

Zumpano said markets that experienced double digit price appreciation and significant speculation over the last few years are cooling, with prices returning to more sustainable levels. Interest rates have been slowly, but steadily, rising for the last year. Last month mortgage rates were about 100 basis points higher (1.0 percent) than during May of last year, and the Federal Reserve just announced another .25 percent hike in the Fed Funds rate.

“While fears of a housing bubble are receding, rising interest rates and declining housing affordability, high gasoline prices, and sagging consumer confidence will probably work to further soften housing markets, especially in higher priced communities, as we move into the second half of the year,” 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 for offering a high-quality, cost-effective education.

Editor’s note: Chart accompanies release

Junhua Yu, research assistant, contributed to this report.