Existing Home Sales Drop in State, According to UA Center

TUSCALOOSA, Ala. – Home sales in Alabama declined by almost 10 percent from October sales of 4,676 units to 4,234 in November of 2006, according to the Alabama Real Estate Research and Education Center at The University of Alabama.

Sales dropped 442 units, an actual decline of 9.5 percent. November sales were also down from November of 2005 by 8.6 percent, and the year-to-date total sales for 2006 remain lower than the total sales in the first 11 months of 2005 by 552 units.

Prices for existing homes in Alabama rose in November, reaching an average sales price of $162,706. Home prices in November were 1.1 percent higher than in October, and the year-to-date average of existing home prices in 2006 was 5.9 percent higher than the average during the time period of January to November of 2005.

According to Suzanna Allaway, real estate resource specialist, the state’s inventory of previously owned homes on the market dropped for the first time in November 2006 after steadily increasing all year to a record in October.

There were 36,066 homes on the market in November, a decline of only 1.5 percent from October. At the current sales pace, this represents an 8.5 month supply of homes. The average number of days a home was on the market increased from the previous month’s average of 117 days to 127 days in November 2006.

Allaway said 17 of the 22 areas tracked by the Alabama Real Estate Research and Education Center reported a decrease in existing home sales in November, and only five areas reported an increase. The 22 areas were evenly split again in November regarding changes in selling prices with 11 areas reporting an increase in prices and 11 areas reporting a decline.

Existing home sales rose for the second consecutive month at the national level in November to 6.28 million units, an increase of 0.6 percent from October. The median existing home price fell for the fourth consecutive month to $218,000, a decline of 3.1 percent from November of 2005.

The number of previously owned homes on the national market fell by 40,000 in November to 3.82 million units. This represents a 7.3 month inventory of homes, meaning that it would take 7.3 months to clear the market. Inventories in November are still 31 percent higher than November 2005.

New home sales nationally rose by 3.4 percent to 1.047 million units sold in November. The median price of a new home also rose in November to $251,700, which represents a 5.8 percent increase over the past 12 months. The inventory of new homes on the market fell in November to a 6.3 month supply of homes.

Housing starts, which typically indicate future market activity, recovered in November after a notable decrease in October. Housing starts rose by 7.0 percent to reach 1.588 million units; however, this number is actually the second lowest in almost 5 years, according to the National Association of Realtors.

“The continuation of falling prices at the national level comes from the absorption of such large inventories of homes,” Allaway said. “While slower economic growth could adversely affect housing demand, falling prices should increase demand for housing, eventually resulting in the stabilization of the housing market.”

Allaway pointed out that Alabama’s economy experienced a healthy 2006 with unemployment remaining well below the national rate and per capita income growing by 3.4 percent over the first half of the year.

“As a result, Alabama’s housing market is slowly moderating due to seasonal factors and a larger inventory of homes on the market,” she said. “While some metropolitan areas in Alabama, such as Birmingham and Huntsville, experienced positive sales growth in 2006 compared to 2005, the Mobile-Baldwin County area actually experienced a substantial sales decline. This shows some volatility in the market, but overall the housing market appears healthy.

Although the upcoming year-end housing statistics will probably not reach the sales levels obtained in 2005, it will certainly come close, and 2006 should still be considered a respectable year-end finish for the Alabama home sales.”

Real estate market analysts forecast 2007 to be a mediocre year for the market but 2008 will bring back the housing boom. Some economists are suggesting this theory will play out in a less optimistic way, Allaway said, such as Fannie Mae analysts predicting a decline of 7.8 percent in home sales in 2007 and a gain of only 0.5 percent in 2008.

“Also, Freddie Mac’s chief economist expects the housing market to actually bottom out in 2007, then begin to rebound in 2008,” she noted. “On a more positive side, Federal Reserve Chairman Ben Bernanke indicated that the housing market could begin its recovery as early as the middle of 2007.”

NAR’s chief economist David Lereah went even further by stating that a revitalization of home sales should begin in the first few months of 2007.

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 this report

Tara Rich, faculty scholar, contributed to this report.