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Photo by Erin Nelson.
New homes under construction in the South Point community of Chelsea Park on Feb. 9.
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Photo by Erin Nelson.
Open land for new homes in the South Point community of Chelsea Park.
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Rising interest rates and inflation caused a slowdown in the housing market in 2022, but Realtors and home builders say the industry is still healthy.
The number of home closings along the U.S. 280 corridor in north Shelby County fell 14%, from 1,748 home closings in 2021 to 1,504 in 2022, according to data from the Greater Alabama Multiple Listing Service. That included a decline in sales of existing homes from 1,476 to 1,267 and a decline in new home sales from 272 to 237.
The 35242 zip code — which includes Inverness, Greystone, Meadow Brook, Oak Mountain, Eagle Point, Brook Highland, Highland Lakes, Mt Laurel, Shoal Creek and Liberty Park — saw existing home sales drop from 1,103 to 973 and new home sales fall from 123 to 82.
The 35043 zip code — which includes
Chelsea and surrounding areas — saw existing home sales drop from 522 to 449. However, new home sales in 35043 were slightly up from 149 to 155 in 2022.
The biggest reason for the overall decline is the rise in interest rates, Realtors and builders say.
The average interest rate for a 30-year fixed mortgage had fallen below 3% after the COVID-19 pandemic hit, dropping as low as 2.65% in January 2021. That was the lowest rate in history and encouraged many people to move or build because they could borrow money at a cheaper price and afford a bigger house.
The market was incredibly busy in 2021 and early 2022. Some people were buying houses without inspections and paying way over asking price in order to win bidding wars, said Gwen Vinzant, a Realtor with RealtySouth’s Inverness office who has been in the business about 35 years.
The housing inventory was so low and demand was so strong that housing prices escalated quickly, Vinzant said. Some home prices went up $100,000 in one year, she said.
Higher costs for building materials also increased the price for new homes, said Jonathan Belcher, president of Signature Homes. The cost of lumber in 2020 and 2021 was 37% above historical averages, according to the National Association of Home Builders, but it since has dropped back down some. Other building materials such as concrete, gypsum and steel also saw rapid price increases during that time.
Since 2018, the price per square foot for new home construction in the 35043 zip code has risen 53%, from $119 per square foot to $182 per square foot, MLS data shows. Average new home prices in the 35043 zip code climbed from $275,460 to $460,149 over that four-year period.
In the 35242 zip code, the cost-per-square-foot increase was less dramatic — a 21% percent increase from $173 per square foot to $210 per square foot. Average home prices in 35242 rose from $535,099 in 2018 to $642,830 in 2022.
Existing home prices also continued escalating in 2022. In the 35043 zip code, existing home prices climbed 13%, from $347,754 in 2021 to $393,189 in 2022, MLS data shows. In the 35242 zip code, existing home prices rose 12%, from $496,491 to $555,857.
TWO-PART YEAR
But 2022 really could be divided into two parts, said Donald Morgan, who has been the broker for RE/MAX Southern Homes’ 280 office in Inverness for about 20 years. The first part of the year remained very strong as interest rates remained relatively low, but things started to change in the fall when interest rates started climbing more briskly, Morgan said.
The Federal Reserve throughout 2022 steadily raised short-term interest rates in an effort to control inflation. The result was that the average 30-year mortgage rate edged up from 2.75% in December 2021 to 4% in March, 5.25% in May and 7% in October, according to Freddie Mac.
The higher rates pushed some potential homebuyers out of the market, slowing down sales for both new and existing homes.
“The market just tanked,” Morgan said.
That end-of-the-year slowdown caused some sellers to reduce their asking prices and cut down on the crazy bidding wars, Vinzant said.
More recently, mortgage rates have stabilized and even dropped some. As of mid-February, the average 30-year mortgage rate was about 6.75%.
“We’re kind of getting back to a normal rate of buying,” Vinzant said.
She said she expects rates could fall further to 5.25% this spring and maybe below 5% again by the end of the year.
In the meantime, inventory remains low, which is keeping prices healthy for sellers, Morgan said. “We’ve got buyers, but we don’t have the sellers,” he said.
In the 35043 zip code, there was only about 1½ months’ supply of existing homes for sale as of mid-February and less than a month’s supply in the 35242 zip code, according to MLS data. There was a greater supply of new homes — about six months in the 35242 zip code and seven months in the 35043 zip code.
Morgan said he is still seeing more cash sales than usual. Normally, about 20% of the market is cash sales, but now it’s closer to 35%, he said. “Cash is king.”
Even though it’s a healthy market, it’s still a tough time for real estate agents because some companies recruit and hire anybody and everybody they can, Morgan said. There probably are 5,000 to 6,000 agents in the area right now, and “Birmingham just isn’t big enough to sustain that many agents,” he said.
MORE BUILDING
Josh Osborne, manager of planning and community development for Shelby County, said he expects home building to continue at a strong pace in 2023 due to the low inventory. He is not seeing any downturn in permits to build new homes, he said.
MLS data in mid-February showed pending contracts for 80 new homes in the 35043 and 35242 zip codes and 118 other new homes up for sale.
Harris Doyle Homes is working on the first 28 lots of a 174-home subdivision called Hillsong near Mt Laurel, and Dominion South Oak is working on about 78 lots in the 3-acre range along Shelby County 41 near Shoal Creek, Osborne said. Meanwhile, D.R. Horton is beginning to build houses on 55 lots in a community called Oak Tree near The Narrows and continues working with other builders in Chelsea Park, which was the most active spot for home building in 2022.
Also, Signature Homes in early summer plans to start construction on 120 townhomes in a community called Windsor Court along U.S. 280 across from the Walmart Supercenter in Hoover. Belcher said his company expects to complete 30 to 40 of those in 2023.
Christie Hester, director of development services for Shelby County, said she believes the housing industry has kind of reached a “new normal” level of activity. However, any increases in interest rates or changes in the supply chain could alter those dynamics at any point, she said.
