Montgomery, Ala.: Home prices hurt even here

Even cities with seemingly strong and stable economic foundations have been unable to withstand the housing crisis.

Consider Montgomery, Ala., the state capital that has a plethora of state and military jobs, and is home to conservative bankers, Alabama State University, Auburn University at Montgomery and Maxwell-Gunter Air Force Base.

Though the local housing market didn't get clobbered by subprime lending woes and resulting foreclosures, the city has not been spared a housing slump.

Home sales were down 43.5% in November, compared with a year earlier. The downturn has been caused by economic worries, says Keivan Deravi, a professor of economics at Auburn University at Montgomery.

The state government began to slash its budget last year.

"The city is tightening its belt to deal with the realities of declining revenues," Mayor Bobby Bright said during his budget address last August.

A major employer, Hyundai Motor Manufacturing, is not laying off employees, but it gave all 3,000-plus of them furloughs in December. And the local unemployment rate has nudged up to about 5.9%, although it's less than the national average.

No wonder home buyers and sellers are more cautious.

"About four people in my neighborhood got into the market to sell their homes," Deravi says. "Because they couldn't sell them, they are holding back for a better time."

Home construction also has slowed, says Dee Morris, president of Montgomery Area Association of Realtors. Prices on newer, high-end homes are falling because those homes are stuck on the market.

Because of that and low mortgage rates, now is a great time to buy a home, Morris says.

But many buyers are waiting.

"We didn't have the excesses of many other metro areas, but there is a very clear slowdown that appears to be happening," Deravi says. "Montgomery's participation in the recession is not voluntary, but it's mandatory."