Editors note: Chart accompanies column. Dr. Leonard Zumpano, co-author of this column, may be reached at 205/348-8988 or lzumpano@cba.ua.edu

By Leonard V. Zumpano, director of the Alabama Real Estate Research and Education Center, and Steven J. Stelk, research assistant.

TUSCALOOSA, Ala. – The sale of existing single-family homes fell 4.08 percent in July to 5,664 units, down from 5,905 units in June, the highest sales pace ever recorded in Alabama, according to the Alabama Real Estate Research and Education Center at The University of Alabama.

Despite the decline, the July sales figure is exceptionally strong and is, in fact, the third highest figure on record with the AREREC. The average sales price increased 1.87 percent to $149,482, setting a record for the state. The average number of days a home was on the market remained virtually unchanged at 127 days, while the total number of homes available for sale increased 3.33 percent to 26,271 units. At the current sales pace, this translates into a 4.6 month supply of homes. Although supply pressures eased a bit last month, inventories remain tight.

Year-to-date home sales in Alabama are up 5.62 percent over July of 2004 at 34,666 units. The year-to-date average sales price is up 14.38 percent versus July of 2004 at $144,197. Homes are selling for higher prices across the state, and they are selling a good bit faster. The year-to-date average number of days a home was on the market in 2005 was 134 days, as compared to 150 days as of July 2004.

The July drop in home sales was felt statewide. In fact, only four of the 21 areas tracked by AREREC reported a gain in the number of homes sold in July, with the remaining 17 areas reporting a decline or no change in home sales. Once again, year-to-date figures tell a different story. Eighteen of the 21 areas reported an increase in homes sales on a year-to-date basis with nine of those areas reporting double digit gains. The average sale price was up in 13 of the 21 areas in July, but it is up in 19 of 21 areas on a year-to-date basis.

As has been the case for more than a year, historically low interest rates and a continually improving employment situation are keeping demand for housing strong. The average 30-year fixed rate mortgage rose slightly in July, hovering in the 5.8 percent range, although long-term rates started falling again in August. The Alabama unemployment rate fell to 4.0 percent in July and was well below the national rate of 5.0 percent.

During July existing home sales declined at the national level as well, falling 2.6 percent to 7.16 million units on a seasonally adjusted, annualized rate, according to the National Association of Realtors® . The fall in home sales comes on the heels of a record sales pace in June and still represents the third highest figure on record. The median sales price remained relatively unchanged in July at $218,000, but is up a full 14.1 percent when compared to July of 2004.

The supply of homes for sale at the current sales pace increased to 4.6 months from June’s 4.4 month figure. The near record sales pace, increasing sales price and continued tight supply of homes available for sale all point to an exceptionally strong housing market at the national level.

A new figure reported by NAR, the Pending Homes Sales Index, tracks the volume of home sales that are under contract in a given month. These homes are generally considered sold, but are not included in the existing home sales figure because the contracts are not finalized. Pending home sales typically lead closed sales by one to two months, so the PHSI is considered a leading indicator for existing home sales. The PHSI was 126.3 in July, up 0.6 percent from June and is up 3.6 percent from July of last year.

In contrast to the existing home market, new home sales rose in July, hitting a new all time high of 1.41 million units on a seasonally adjusted, annualized basis. This is an exceptionally strong sales pace. For comparison, consider that 2004 was a record year for new home sales with 1.2 million units.

Housing starts were over the two million mark for the fourth consecutive month in July at 2.042 million units (seasonally adjusted, annualized). The strong home price appreciation and tight supply figures are keeping builders busy with a strong demand for houses.

The employment situation continued to improve in July with 207,000 payroll jobs added. The national unemployment rate remained unchanged at 5.0 percent. The Consumer Price Index increased 0.5 percent in July, slightly more than was predicted. Core prices (excluding food and energy) rose only 0.1 percent. A 3.8 percent rise in fuel prices erased the two month decline in consumer prices.

The increasing national debt and inflationary pressures from the expanding economy and rising fuel prices will continue to push short-term interest rates higher in the coming months. Rising interest rates will put some cooling pressure on the housing market in the near future. It will be interesting to watch the effect of rising rates on home prices in the coming months.

Home buyers who used short-term, variable rate loans will be most affected by the coming increase in interest rates and may be forced to sell newly acquired homes as increasing rates push their monthly payments up. The consensus opinion of most economists is to look for home sales to moderate in the coming months and home prices to possibly begin falling as we move into the second half of the year. This is the same prediction that economists have been making for the last three years.

While some “frothy” markets can be expected to cool, to use the nomenclature of Alan Greenspan, chairman of the Federal Reserve, there is little indication of a systematic, nationwide housing slowdown in the data, at least not yet.

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.