Alabama Housing Market Showing First Signs of Decline, According to UA Real Estate Expert

TUSCALOOSA, Ala. – For the first time this year the housing market in Alabama is showing signs of slowing, according to Dr. Leonard Zumpano, director of the Alabama Real Estate Research and Education Center at The University of Alabama.

“While the direction of the market was still uncertain in August, September’s numbers are more revealing, with declining home sales at both the national and state levels,” Zumpano said. “Total existing home sales in Alabama during September fell by 27 percent from the previous month. For the U.S., existing home sales fell, on a seasonally adjusted annual basis by 11.7 percent during the same period.”

Zumpano said the seasonally adjusted annualized rate stood at 4.89 million units in September, the lowest level in 14 months. On an unadjusted basis, the monthly decline is closer to a 26 percent decline for September.

“The fall off in sales is not as dramatic as it may first seem, at least in Alabama,” Zumpano said. “Statewide, sales in September were down 120 units compared to last year at this time and year-to-date unit sales are down by less 250 homes from September 2000. A review of prior year data also indicates that housing market activity in September is slower than during August.”

Zumpano said that within Alabama existing home sales fell in 17 of the 20 reporting locations, increasing only in Eufaula and Walker County. The number of homes sold in Gadsden remained unchanged from August levels. In some cases the decline in existing home sales was substantial. Home sales fell by 313 units or 28 percent in the Birmingham Metro Area and by 154 units or 36 percent in Huntsville. The Montgomery Area MLS also reported a decline in sales during the past month of 33 percent, while sales in Lee County declined by 44 percent.

Zumpano said statewide, the average selling price rose sharply in September, up from $113,077 in August to $123,359 in September, a 9 percent increase. Average days on the market and the number of homes available for sale declined slightly from August levels.

According to AREREC, home prices declined in 12 of the reporting areas, with Baldwin County registering the largest fall from $180,111 in August to $165,898 in September. In most other locations the decline in housing prices was relatively slight.

Existing home prices rose in Cullman, Dothan, Eufaula, Lake Martin, Marshall County, Muscle Shoals, Selma, and Walker County. Because some of the increases in home prices were very large, it pulled up the state average for the month. For example, Eufaula reported an average home price of $159,500 in September, an increase of slightly more than $94,000 from August. While this helped raise the statewide average price, Eufaula accounted for only five of the homes sold in September.

“Such large month-to-month variation is not so surprising given the small number of homes sold in such locations,” Zumpano said.

With respect to the new home market, the National Association of Home Builders reported that new home sales edged down by 1.4 percent to 864,000 annualized units, the lowest level in 13 months. Compared to September 2000, new homes sales are down 4.2 percent. On the other hand, Zumpano said, housing starts remained strong, increasing by almost 1.7 percent in September.

“This may not be so surprising as many of these new home sales were already under contract before the terrorist attacks in September,” he said. “During the same time period, the other principal indicator of future housing market activity, building permits for single-family units, dropped by 4 percent from August.”

In Alabama, contracts for future residential construction increased by 4 percent statewide. For the metropolitan areas surveyed by F.W Dodge, the dollar amounts of residential building contracts fell in Birmingham, Decatur, Florence, Huntsville, Mobile, and Tuscaloosa. Anniston, Dothan, Gadsden, and Montgomery reported increases in the value of residential building contracts.

“While most of the September housing statistics indicate that the housing markets in both the U.S. and Alabama are slowing, the real issue is whether the September numbers mark a change in market direction or only a reflection of the shock and uncertainly caused by the terrorist attack,” Zumpano said. “While the events of September 11 certainly will have an impact on the housing market in the months to come, most of the decline in the housing sector reported in September probably reflects the faltering economy.

“Layoffs and rising unemployment are making consumers more pessimistic about the future, which is reflected in the plunge in consumer confidence.”

Zumpano said the Conference Board reported its Index of Consumer Sentiment fell to 85.5 in October, the lowest level since February 1994. The Index was 97.0 in September.

“Consumer spending, especially for big-ticket items like homes, falls in this type of economic environment, even with very attractive mortgage rates. The terrorist attacks of September are simply aggravating what was already a deteriorating situation,” Zumpano said.

Zumpano said the Federal Reserve will probably cut interest rates again in November, which should help both the economy and the housing market. “The very sizeable increase in refinancing activity that has been going on for most of the year will likely continue, which will provide a very needed injection of cash into the economy,” according to Zumpano. He said the Federal National Mortgage Association (Fannie Mae) estimates that home refinancing should pump an extra $50 billion dollars by the end of the year.

“Alabama is not immune to the changes taking place, both nationally and internationally, and unemployment in the state has been edging up, Zumpano said. “While we believe that the state’s economy will slow over the coming months, longer-term demographic and economic trends suggest the state’s housing market will not slip into a major recession and will finish the year relatively strong.”

The University of Alabama Culverhouse College of Commerce and Business Administration, founded in 1919, is home to the Alabama Real Estate Research and Education Center.