Alabama Housing Market Finally Shows Signs of Slowing, According to UA’s Real Estate Research Center

TUSCALOOSA, Ala. – After increasing for most of the year and setting a record in June, the number of existing homes sold in Alabama fell by a whopping 12.8 percent in July, according to the Alabama Real Estate Research and Education Center at The University of Alabama. Sales dropped to 5,260 units, down from 6,032 units in June.

Compared to last year at this time, homes sales are still marginally ahead, up by 404 units. Year to date, the picture looks a little better, with sales up 7.2 percent through the first seven months of 2006 compared to 2005.

Existing home prices also fell in July, after increasing for six consecutive months, according to the UA center. After defying the national trend through the first half of the year, the average selling price fell from a record $161,153 in June to $152,608 in July, a decline of 5.2 percent from the previous month.

“On the positive side, average home prices are still ahead of last July and year to date are 7.2 percent higher than through the first seven months of 2005,” said Dr. Leonard V. Zumpano, director of the UA center.

“Interestingly, the supply of homes actually fell slightly in July, the first time this has happened this year,” Zumpano said. “Compared to the same time last year, however, there were still almost 7,500 more homes on the market this July. The increase in supply finally seems to have brought home prices down in Alabama.”

Within Alabama, the decrease in homes sold was broad based with 15 out of 20 areas reporting a decline in sales, while home prices remained unchanged in two locations, and rose only in three locations. The fall in prices, however, was not so widespread with only 11 out of 20 locations reporting falling prices in July.

Nationally, it was a similar picture. Existing home sales continued their slide, down another 4.1 percent from June. Through the first seven months of this year existing home sales are down 11.2 percent compared to the similar period last year.

Median home prices were virtually unchanged from June at $230,000, up less than a half of one percent from a month ago. Compared to the same time last year, existing home prices are up less than 1 percent, falling in every region except the South.

The inventory of existing homes continues to rise as demand falls, up another 3.2 percent in July to 3.86 million units. The National Association of Realtors indicated this represents almost a 7.5 month supply at the current sales pace.

New home sales followed the decrease in the sale of existing homes. The Commerce Department reported new home sales fell by 4.3 percent last month. This decline was the largest since sales fell by 11.5 percent in February. The median price of a new home fell slightly in July to $230,000, down from $233,800 in June. The median price of a new home in July of 2005 was $229,200.

A slowing economy, rising unemployment and higher mortgage rates are having the expected effect on the housing markets, according to Zumpano. Freddie Mac reported the national average commitment rate for 30-year, fixed-rate mortgage loans was 6.76 in July, up from 6.68 in June. Last July, the rate was only 5.70, 106 basis points lower.

“High gas and oil prices continue to exert upward pressure on prices, absorbing more disposable income of consumers and raising more fears about inflation, which could result in the Federal Reserve resuming increasing interest rates,” Zumpano said.

“None of these events bode well for the housing market through the remainder of the year. Over the past five years, home prices, nationwide, have increased by more than 50 percent. While Alabama enjoyed an expanding housing market and rising prices, home prices did not increase as rapidly as in some parts of the country, where price increases, fueled by speculators, were way out of proportion to the growth in income.

“As a result, the slowdown in Alabama’s housing market should not be anywhere near as dramatic compared to many of the high cost markets.”

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