TUSCALOOSA, Ala. -- Home sales easily set an annual record in 2002 with 39,058 homes sold throughout the year in Alabama, according to the Alabama Real Estate Research and Education Center at The University of Alabama.

The sales pace was 11.57 percent above 2001’s record-setting sales figure of 35,009. On a month-to-month basis, the number of homes sold increased 3.24 percent to 3,055 in December, the first solid gain in home sales since October. The increased sales pace caused the supply of homes to fall from 8.68 months to 8.19 months. Average selling price increased 1.56 percent in December to $120,550.

“Last year was a remarkable year for the housing sector,” said Dr. Leonard Zumpano, professor of finance and director of the center. “Home sales have set a record in the face of an economic slowdown, thanks largely to a relatively stable employment situation and historically low interest rates. In fact, there were only two months of mild declines in homes sales in 2002, in June and September. But despite the record sales pace, average home prices have increased only 1.12 percent across the state.”

Several areas saw large increases in the number of homes sold year-to-date 2002 from 2001. In fact, only two areas tracked by AREREC recorded declines in the number of homes sold year-to-date 2002: Huntsville and Monroe County. Lee and Marshall Counties reported 25.1 percent and 14.75 percent increases, respectively, in the number of homes sold in 2002. Baldwin County reported a dramatic 64.8 percent increase in home sales in 2002. Baldwin County also reported one of the largest increases in average selling price at 10.72 percent. Zumpano said the number of homes available for sale year-to-date in 2001 was understated because a technical problem prevented Birmingham from reporting its number of homes available for sale from January and February 2001. “If we make the conservative assumption that 6,000 homes were listed each month, the year-to-date number of homes available for sale in 2001 jumps to 321,306, much closer to 2002’s figure of 328,432,” Zumpano said.

Looking forward, the employment situation in Alabama seems to be moderating, Zumpano noted. He said unemployment fell in every major metro area tracked by the Alabama.

Department of Industrial Relations. The state unemployment rate held steady at 5.8 percent. Year-to-date residential construction spending is up 4.61 percent to $2,672,975,000 across the state, according F.W. Dodge Reports. Mobile and Montgomery posted the largest annual gains in construction spending with 55.45 percent and 26.16 percent increases, respectively. Birmingham and Gadsden reported increases in annual construction spending of more than 10 percent, while Anniston, Columbus, Dothan, Huntsville, and Tuscaloosa all reported greater than 10 percent declines. Construction spending is typically considered a leading indicator of housing activity. The statewide increase in spending would point to continued strength in the housing sector in the near term, according to Zumpano.

Home sales finished out 2002 with a bang at the national level as well. The National Association of Realtors reported 5.86 million homes sold in December on an annualized, seasonally adjusted basis. The surge in homes sales easily pushed home sales in 2002 to a record 5.563 million units. The increase in sales pace pushed the supply of homes to 4.2 months, a historically tight supply figure, but not unusual for the winter months as fewer homes tend to be listed, Zumpano said. “Not surprisingly, the median selling price of an existing, single family home was up 7.1 percent verses December of 2001,” Zumpano said.

New home sales and housing starts each finished 2002 strong. Zumpano said new home sales set a record with 1.082 million homes sold on an annualized, seasonally adjusted basis. Housing starts were the highest since 1986 with 1.835 million units (annualized, seasonally adjusted), likely in response to the tight supply of new homes. Construction spending posted its fourth consecutive increase in December to $843.2 billion, a 0.3 percent increase from November. Residential construction spending continued upward 0.9 percent on a month-to-month basis and is up 6.7 percent over December of 2001.

Two of the key ingredients to homes sales, consumer confidence and the employment situation, saw declines in December. Consumer confidence fell for the second straight month to 79.0. Consumers downgraded their assessment of the present situation and future expectations while reporting that jobs seem easier to find. According to the Commerce Department, non-farm, payroll employment actually fell by 101,000 in December. Overall unemployment held steady at 6.0 percent. The economy expanded at a 4.0 percent rate in the third quarter of 2002, but preliminary figures show only a 0.7 percent growth rate in the fourth quarter. “The great amount of uncertainty in the economy and the possibility of war is most likely weighing heavy on consumers minds and keeping confidence at bay,” Zumpano said. “Barring any major shocks, however, the economy will likely continue to grow at a mild pace into 2003.”

The housing sector has shown remarkable resilience at both the national and state levels in the face of the current economic slowdown, Zumpano noted. One possible warning sign on the horizon, at least at the national level, he said, is the rapid increase in home prices relative to income. Over the last four quarters, the median price of an existing, single family home has increased 9.17 percent, while the median income level has only increased 2.02 percent. Falling interest rates have fueled the rise in home prices because homebuyers can afford higher prices when interest rates are lower.

According to Zumpano, Alabama has not seen the same run-up in home prices relative to income. In fact, the median price for an existing, single family home in the state has risen only 2.77 percent over the last four quarters, while income levels have increased 1.49 percent. Just as at the national level, however, a gradual increase in interest rates should bring home price appreciation back in line with income growth.

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.