Housing Market
Slows Down, Still
on Track to Set
Annual Record
Although the Alabama housing sector changed
very little in the second quarter, it continues to
show strong levels of production in terms of permits, starts, and completions despite a small
decrease in activity. Alabama home sales slipped
1.8 percent in June to 4,345 units, but the
decline does not come as a surprise after May’s
record setting 4,424 homes sold. In fact, June’s
figure for number of homes sold is the second
highest on record behind May’s. The average
selling price also fell 4.8 percent to $122,442
while supply rose to 6.17 months in June from
6.15 months in May. All of these figures indicate
a slight “loosening” of the Alabama housing market, and they may be the first signs of a cooling
trend in the sector.
Year-to-date home sales in Alabama are still up
16.3 percent over the same time last year, while
average selling price is up 3.1 percent. Only
three areas recorded a smaller number of homes
sold when compared year-to-date with June of
2002, including Gadsden, Lee County, and Marshall
County. Despite the slip in the total number of homes
sold across the state, Baldwin County, Cullman County,
and Lee County all set records for the highest number
of homes sold in one month, as did Mobile and Montgomery. Dothan, Huntsville, and Montgomery set
records for the highest recorded average selling price.
Residential construction spending continued to increase in
the state in June, climbing 17.1 percent year-to-date over
June 2002 to $1.55 billion, as tracked by F. W. Dodge
Reports. On the negative side, the unemployment rate
worsened slightly, climbing to a preliminary figure of 5.9
percent from 5.7 percent, according to the Alabama
Department of Industrial Relations.
The number of existing single-family homes sold slipped
0.3 percent at the national level to 5.83 million units on
an annualized, seasonally adjusted basis, according to the
National Association of REALTORS® (NAR). Median
selling price is up to $176,500, an increase of 7.7 percent
compared to June of 2002. Supply increased slightly to
5.1 months in June from 4.8 months in May. However,
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the manufactured housing industry continues to post
some of the lowest shipment levels in more than 40 years.
Very little has changed in the apartment sector. The
national average apartment vacancy rate in first quarter
2003 increased to 7.1 from 6.0 percent a year earlier,
according to M/PF Research. New supply continues to
grow despite weak tenant demand, with little relief in permit activity. Bank of America reports multifamily completions hit an annual rate of 345,000 units in May 2003,
which is a 20 percent increase from the previous year and
its highest level since March 2000. According to the
National Apartment Association’s Consulting Economist,
Robert Jr. Sheehan, the rental housing market conditions
continued to soften in the second quarter of 2003.
Vacancy rates rose and rent increases moderated. An essential ending of the war in Iraq does help to ease the uncertainties that negatively impacted consumer confidence.
Now media attention will turn more to the twin deficits—
federal budget and foreign trade. It is difficult to forecast
a sharp upturn in the rental market and the economy in
the near term if interest rates remain low and job growth is
weak. Job growth is a major factor to the recovery in
apartment tenant demand. Apartment properties would
likely benefit from an increase in interest rates, which
would make housing more expensive and may slow new
construction. The recent accounting failures at Freddie
Mac and increased scrutiny of all the agencies’ lending
activities could disrupt the mortgage market. If this shakeup results in less accommodating lending programs and
increased borrowing costs, marginal buyers, who would
otherwise be renters, would likely feel a direct impact.
Residential construction spending increased at the national level as well, inching up 0.7 percent to $322.1 billion in
May on a seasonally adjusted annual basis, according to
the U.S. Census Bureau. The Consumer Price Index, the
most popular gauge of inflation, increased 0.1 percent in
June to 183.7 as tracked by the Bureau of Labor Statistics.
The Producer Price Index for Finished Goods, generally
considered a leading indicator for inflation, rose 0.5 percent in June to 142.6. According to these metrics, the
deflation that many economists feared has not shown
itself. Employment in the Southeast continued to slow
during the first quarter of 2003. With manufacturing losses
weighing heavily on the region’s economy, employment
declined by 55,100 jobs, or 0.2 percent, to 24,246,400 for
the 12 months ending February 2003. The U.S. employment situation worsened for the fifth straight month in
June, shedding a total of 30,000 nonfarm, payroll jobs.
The latest decline pushed unemployment up to 6.4 percent, the highest level in nine years. Economic growth on
the order of three percent per year is needed to bring jobs
back into the economy, which the NAR is forecasting to
happen in the third quarter of this year.
As mentioned earlier, it seems that there are signs of slackening in the housing sector. At the state level, the fall in
home sales and prices, taken with the slight increase in
supply, does point to further weakening in the sector.
Increasing mortgage rates will likely be the main drag on
the market, however. According to data released by the
Mortgage Bankers Association of America on July 23, the
national average for a 30-year, fixed rate mortgage
increased to 5.72 percent from 5.33 percent one week earlier, with average points increasing to 1.53 from 1.47.
Historically low mortgage rates have kept housing affordable in an otherwise uncertain economic environment. A
national average mortgage rate of 5.72 percent for a 30year mortgage is still low by historical standards, but the
increase may have a negative impact on the housing sector
in the next few months, especially if rates continue to rise.
Home sales are still very strong by any measure. While a
slowdown is expected some time in the near future, the
NAR is predicting yet another record-setting year for
home sales in 2003.
Leonard Zumpano
Director, Alabama Real
Estate Research and
Education Center
Alabama Historical Housing Statistics
Date
2003-May
April
March
February
January
2002-December
November
October
September
August
July
June
May
April
March
February
January
2001-December
November
October
September
Number
of Sales
Average
Selling Price
Median
Price
Average Days
on Market
Total Homes
Listed
4,424
4,112
3,496
3,004
2,579
3,062
2,959
3,238
3,211
3,901
3,832
3,610
3,892
3,258
3,145
2,640
2,317
2,753
2,651
2,659
2,599
$128,598
127,417
119,595
121,151
116,271
118,661
118,662
116,970
123,664
121,579
115,549
123,074
120,393
119,749
116,650
120,848
114,163
108,773
110,381
116,203
120,378
$107,980
109,108
102,124
103,253
103,277
94,500
99,900
98,500
99,900
97,500
92,950
93,900
98,900
91,250
99,500
100,000
98,850
89,750
87,200
103,194
100,000
162
148
161
143
151
151
166
144
156
146
143
143
171
154
148
169
177
156
153
154
146
27,206
26,451
26,685
26,511
26,736
25,146
25,689
27,424
27,620
28,012
28,017
28,367
28,487
27,991
27,580
27,010
27,596
25,941
26,649
27,924
27,740
Source: Alabama Real Estate Research and Education Center, The University of Alabama.
For more information about the Alabama Real Estate Research and Education Center at The University of Alabama:
http://arerec.cba.ua.edu/ or call (205) 348-4117.
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