State Housing Market Rebounds in February; UA Real Estate Center Sees 16.5 Percent Jump

TUSCALOOSA, Ala. – The Alabama housing market rebounded strongly in February from January’s slowdown, according to figures released by the Alabama Real Estate Research and Education Center at The University of Alabama.

A total of 3,004 homes were sold in the areas tracked by the center, 16.5 percent above January’s sales pace of 2,579 homes. The total number of homes available for sale fell in February to 25,510 from 26,738 in January, causing supply to fall to 8.8 months from 10.4 months.

The increase in sales pace, coupled with a fall in the number of homes available for sale and historically low interest rates, helped push the average price of existing, single-family homes up 4.2 percent, statewide, to $121,151 in February. As compared to February of 2002, however, average selling price is up less than one tenth of a one percent.

The 3,004 figure for total homes sold is the highest on record for Alabama in the month of February. The next closest figure was recorded in February 2002 at 2,640. Year-to-date, the number of homes sold is up 12.1 percent to 5,558 units. Only three areas tracked by the real estate center reported declines in the number of homes sold in February: Lake Martin, Muscle Shoals, and Selma. Each of the three areas reported a decline of only 2 homes from the previous month.

The highest percentage gains in home sales were posted by Baldwin County, Calhoun County, and Gadsden, each with a better than 40 percent increase in the number of homes sold versus the previous month. Despite the increase in the state-wide average selling price, half of the 20 areas tracked by the center reported a decline in average selling price. However, in many of the areas reporting an increase in selling price, the selling price increase was substantial, which pulled the statewide figure up.

Year-to-date residential construction spending, a rough indicator of future housing activity, is up 5.6 percent to $438.2 million in the state, according to F.W. Dodge Reports. Birmingham and Dothan both reported substantial growth year-to-date in residential construction spending with a 17.0 percent and a 9.0 percent increase in spending, respectively.

Anniston, Gadsden, and Huntsville recorded the greatest percentage declines. Anniston saw a 26.1 percent fall in spending, while Gadsden and Huntsville saw a 16.1 percent and a 10.9 percent fall in residential construction spending, respectively.

In broader economic news, the Alabama Industrial Relations Board reported that the state’s unemployment rate fell 30 basis points to 5.6 percent in January. Despite the fall in the state unemployment rate, all but one of the 11 major metro areas in Alabama recorded a mild increase in the unemployment rate in January. Compared to the same time last year, however, Montgomery is the state’s only major metro area to show an increase in the unemployment rate.

“While a 16 percent per month growth in home sales is not sustainable, a relatively stable employment situation in the state, coupled with continued low interest rates, should keep home sales strong through 2003,” said Dr. Leonard Zumpano, the director of the real estate center.

At the national level, sales of existing, single-family homes fell 4.3 percent to 5.84 million units on an annual, seasonally adjusted basis, according to the National Association of REALTORS® (NAR). The decrease comes on the heels of a record-setting sales pace in January, so the decline was expected, Zumpano said.

“In fact, the February sales pace is the fourth highest on record,” he said. “Homes sales are actually up 1.2 percent versus February 2002, a record setting year. The median selling price is up less than one percent to $161,600 versus last month, but has increased 8.2 percent since February 2002. By way of comparison, the median family income, as tracked by NAR, has increased from $51,621 to $52,929, or 2.5 percent over the same one-year period.”

“Despite the run-up in home prices relative to income, the average monthly mortgage payment has actually fallen thanks to historically low interest rates. In fact, the Housing Affordability Index increased 6.1 points to 143.4 in February 2003 from 137.3 in February of last year. The Housing affordability Index did fall slightly from January when it stood at 143.8, but housing is still affordable by historical standards.”

Housing starts also fell sharply in February, but it may have been in response to harsh winter conditions in some parts of the country. A total of 1.622 million starts was reported by NAR for February, 11 percent below January’s revised figure of 1.822 million units. Housing starts were by no means weak last month, however. The first two-month average for 2003 of 1.722 million units is higher than last year’s figure at the same time. Residential construction spending was up 1.7 percent to 877.9 billion in January, but may have slowed in February, for which data is not yet available, due to winter weather conditions.

Payroll employment also took a large cut in February, according to Zumpano. A total of 308,000 jobs were lost last month. The overall unemployment rate increased slightly to 8.7 percent from 5.7 percent. NAR calculates that strong economic growth, on the order of 3 percent, is needed to bring steady job creation back to the economy. Despite the fall in employment, the NAR is forecasting that the economy will net 1 million new jobs in 2003.

Since the beginning of the year, low and falling interest rates and a relatively stable employment situation have kept the housing market rolling along, Zumpano said. According to the National Housing Finance Board, the average effective interest rate on a 30-year, fixed rate mortgage fell to 5.92 percent in February, just lower than the 5.98 percent rate reported in January and well below the 6.84 percent rate recorded in February 2002.

However, war jitters, concern over a growing federal deficit, and inflation fears have caused a recent reversal in the downward trend in mortgage rates, according to Zumpano.

He also pointed out that consumer confidence continued to fall in February. “The index fell to 64.0 last month from 78.8 in January,” he said. “The index continues to highlight the confusion felt by consumers. The assessment of the present situation component fell 13.7 points and the future expectations component declined 15.5 points. At the same time, the number of people planning on buying a home in the next six months increased 0.2 points. Consumers are obviously being lured into the housing market by historically low interest rates, but people tend to put off major purchases such as homes when they are truly concerned about the security of their employment.”

The sluggish economy, falling consumer confidence, and the recent increase in mortgage rates are matters to monitor in the coming months, Zumpano said. “For the near term, however, market fundamentals continue to be strong and the housing sector is on track to post strong sales for 2003,” he 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.