2006 Still Looks to be a Good Year for Housing in Alabama, According to UA Center

TUSCALOOSA, Ala. – There was little change in existing home sales during October, according to the Alabama Real Estate Research and Education Center at The University of Alabama.

Existing home sales increased to 4,780 in October, a small increase of 0.29 percent from September, a month when home sales fell by a very sizeable 17.8 percent. October’s sales were down 1.1 percent from October of 2005, and for the first time this year total sales have fallen behind last year’s pace (compared to the first 10 months of 2005).

Year-to-date existing home sales in 2006 totaled 50,525 compared to last year when 50,573 units were sold from January through October, according to Dr. Leonard Zumpano, professor of finance, chair of real estate and director, Alabama Real Estate Research and Education Center at The University of Alabama.

Home prices in Alabama, on the other hand, rose 1.7 percent in October to an average selling price of $160,820. Existing home prices have fallen only twice this year — in July and September. Year-to-date existing home prices in 2006 are 6.1 percent higher compared to the first 10 months of 2005, a very healthy rate of annual appreciation.

The number of homes on the market in Alabama set an all time record in October, rising to 36,499 units for sale. The inventory of previously owned homes listed on the market has steadily increased since December 2005. This October there were more than 9,000 used homes on the market than last year at this time. At October’s sales pace, the current inventory of previously owned homes would take 7.6 months to clear the market. The average days a home was on the market in October increased to 116 days from 113 days in September.

Fourteen of the 22 areas tracked by the Alabama Real Estate Research and Education Center reported an increase in home sales in October, while eight areas reported a decrease. Changes in selling prices were evenly split in the AREREC sample, rising in half of the reporting areas and declining in the other 11 locations.

At the national level, existing home sales rose in October for the first time in eight months. Sales of existing homes rose by 0.5 percent to 6.24 million units. The median existing home price remained static in October at $221,000. This represents a drop in prices of 3.5 percent from October of 2005, the biggest year-to-year price decline on record since the National Association of Realtors® began reporting housing statistics in 1968.

Nationally, the number of previously owned homes on the market increased in October by 1.9 percent to a record-breaking 3.85 million units. Given the current rate of sales, this represents a 7.4 month supply of homes. The national inventory of homes this October is actually 34 percent higher than the inventory in October of last year.

New home sales at the national level dropped in October to 1.004 million units sold, representing a 3.2 percent drop from the September rate that was downwardly revised to 1.037 million units. New home sales in October were down 25.4 percent from October 2005. The national new home median price rose, however, in October by 13 percent to $248,500.

“This is a somewhat surprising finding as many home builders are saying they are cutting prices to reduce supply,” said Zumpano. “The inventory of new homes on the market, however, rose to a seven-month supply in October from a 6.4 month supply in September.”

National home construction dropped in October by a huge 14.6 percent to an annual rate of 1.486 million units, its lowest level in more than six years according to the Commerce Department. The sharpest fall of 26.4 percent occurred in the South.

Housing starts, an indicator of future housing market activity, dramatically decreased by 15 percent in October to 1.486 million units. This figure is 27 percent lower than the housing starts in October of last year and represents the lowest level of home building activity since July 2000. Applications for building permits, another indicator of future construction, dropped for the eighth consecutive month, falling by 6.3 percent to an annual rate of 1.535 million units.

Despite cutbacks in new home construction, it will take time to absorb these large inventories, Zumpano said.

“That is why many analysts of the national market believe that home market will remain weak well into next year,” he noted. “Large inventories of both new and existing properties should be exerting downward pressure on prices as sellers lower their reservation prices in the face of slowing demand. The sooner home prices fall, the faster the housing market will begin to stabilize.”

Not all housing markets are depressed, and Alabama is a case in point, Zumpano said.

“Because the state’s economy remains strong and unemployment very low, Alabama’s housing market remains robust in many locations,” Zumpano said. “Given the large supply of homes on the market, we expect to see some price moderation and slowing sales for the remainder of the year. Part of this slowdown can be attributed to seasonal factors as we approach the end of the year. Although our housing statistics indicate we will probably finish out the year below last year’s record levels, 2006 will still be a very good year for housing in Alabama.”

Editor’s note: Chart accompanies release

Tara Rich, research scholar, contributed to this report.