Home sales in Alabama rose in July as the housing market braces for falling interest rates, but uncertainty in the fall could slow that momentum.
“The market is ripe for activity, waiting for the pieces to fall into place,” said Bennie Waller, a professor of finance and real estate at the University of Alabama. “There is a lot of pent-up demand to sell or buy.”
According to the Alabama Association of Realtors’ July real estate and economic report, there were 6,316 home sales statewide in July, a 13.1% increase from June of this year and a 0.9% increase from July 2023.
Home sales in the state have increased over the past six months, but this is the first month since January 2022 that sales have increased year-over-year after the Federal Reserve began raising interest rates in early 2022 to curb inflation.
According to PBS, the Federal Reserve is expected to cut interest rates at its September meeting.
Mortgage rates in the state fell in July as banks anticipate falling rates. The average rate on 30-year fixed-rate mortgages in the state fell 22 basis points in July, from 6.95% to 6.73%, the AAR report said.
The median sales price for homes sold in Alabama in July was $233,216, up 2.3% from July 2023. That’s the highest median home price in the state in nearly two years.
The number of active residential property listings rose to 17,368 in July, representing an increase of 41.7% year-on-year and 4.9% from June to July. This is the highest number of listings since January 2020.
According to the AAR report, the Alabama market had approximately 3.9 months of supply in July, up 30% from a year ago, but down from June, when supply was 4.3 months.
The Alabama Association of Realtors expects home sales to increase in the next few months as buyers adjust to high mortgage rates and pent-up demand.
“The steady growth over the past six months demonstrates that demand for homes in our state remains strong and Alabama’s economy remains robust,” said Jeremy Walker, CEO of AAR. “As the market continues to gain strength, the state remains a prime location for homebuyers and investors alike, especially with increasingly affordable mortgage rates.”
Waller agrees, but cautions that some upcoming changes could lead to a cooler market than expected.
First, the upcoming presidential election brings some uncertainty to the market, he said. Studies have shown that people tend not to buy during an election because of the uncertainty.
“Everyone is biting their nails,” Waller said. “It’s killing what would otherwise be a very hot market.”
In addition, a $418 million class-action settlement agreed to by the National Association of Realtors in the spring is expected to dramatically change the way homes are purchased in the U.S. There is a widespread expectation that buyers will have to pay the realtor’s commission themselves and that commissions will be more negotiable.
These changes took effect on August 17, and final approval of the agreement will occur in November, according to NAR.
Waller predicts that the new changes to real estate agent commissions will have a particularly strong impact on middle-income buyers, who will have to pay commission costs in addition to the down payment, creating even more uncertainty in the real estate market.
“The down payment is already the most prohibitive factor in buying a home,” Waller said. “Add 3% to that and it becomes even more prohibitive.”
Waller is confident that interest rates will be cut in September. According to the AAR report, a cut of 25 basis points (0.25 percent) is the most likely scenario. But a lot can still happen between now and September, he said.
