Is the Greater Birmingham Area housing market in a bubble right now? Local experts speak up

Read Time 6 Minutes

outdoor entertainment spaces are hot, Birmingham housing market bubble
Everybody wants room to entertain outside now. Photo via LAH Real Estate

June 1 kicked off National Homeownership Month, and the US housing market is as hot as an Alabama summer. You can’t look at the news without hearing talk about whether we’re in a housing market bubble, and if so, when the bubble will burst. To learn about the current state of our local housing market, we reached out to four Realtors and three experts. Here’s what they told us. 

First, let’s define our terms: what exactly is a housing bubble?

Home for sale ARC Realty, Birmingham housing bubble
High demand, low supply and high prices are all part of the equation. Photo via Matthew Niblett for Bham Now

According to bankrate.com, “A real estate bubble, also referred to as a ‘housing bubble,’ occurs when the price of housing rises at a rapid pace, driven by an increase in demand, limited supply and emotional buying. 

Once speculators recognize that housing prices are on the rise, they enter the market, further driving up demand. The phenomenon is called a bubble because at some point it will burst.”

Building off of that definition, we’ll take a look at what’s happening in the Greater Birmingham Area housing market vs. what’s happening around the country. 

Here’s who we talked to for this story:

1. The price of housing is rising at a rapid pace, but not as fast as other places

Housing market trends
Local housing market trends since January 2020. Graphic via Birmingham Association of REALTORS, courtesy of Amanda Creel

Stuart Norton of ACRE, the Alabama Center for Real Estate at the University of Alabama’s Culverhouse College of Business, was kind enough to supply us with some great numbers for this story.

Median sales price growth year over year (meaning April 2020 to April 2021) was the first set of statistics that jumped out at us: 

  • Nationwide: ⬆️ 19.1% year over year.
  • Alabama: ⬆️ 10.5% year over year.
  • The Birmingham area: ⬆️ 6.1% year over year.

Keep calm + carry on

RealtySouth, house
Kind of loving that blue door. Photo via RealtySouth

Even though housing prices have been rising, there’s no need to panic, according to Norton:

“Median sales price growth slowed down somewhat in Alabama and Birmingham during April, which is good news for buyers as it helps ease affordability concerns.

Yes, there is a lot of talk at the moment about the possibility of a housing bubble. While it is true that home prices have risen significantly over the last year, in my opinion prices are rising due to the strong underlying fundamentals of the housing market.”

This is a sentiment echoed by several of the Realtors we spoke with: instead of a wildly speculative market that’s bound to come crashing down, we’re actually in a very strong market that over time will adjust, but we’re not necessarily doomed to a big crash like we experienced in 2007-08. 🤞🏽

2. Demand is higher than supply, causing a strong seller’s market

Birmingham, RealtySouth
Everybody wants an amazing kitchen. Photo via RealtySouth

Here are a few key drivers of demand:

  • The pandemic: “COVID changed a lot of the ways people thought about where they live and where they work.” Think suburbs, home offices, room for remote school and places to entertain outside. (Sarah Sams)
  • Millennial homebuyers: across the nation, a significant portion of this sizable generation reached homebuying age during the pandemic. (Bloomberg News)
  • Low mortgage rates: “Low rates give buyers more purchasing power, which helps offset rising home prices to some degree.” (Stuart Norton)

And drivers of low supply:

  • People staying put: with time and money to spend at and on a home, many homeowners are investing in where they are and staying put. (Jane Huston Crommelin)
  • New construction slowdown: construction labor shortage, supply chain disruptions, soaring lumber prices…all mean that new construction that used to take four to six months now takes six to 12 months. Most people don’t want to list their old home ‘till they know they have a new home that’s ready for them. (Jana Clark)

Birmingham area:

While prices might not be rising as rapidly in the Greater Birmingham Area as in the state as a whole or other parts of the country, homes are on the market for a hot minute:

“Birmingham area properties sold faster than ever in April, averaging just 17 days on market (DOM), a record low.”

Stuart Norton

3. Buyers are making emotionally-driven decisions

Each Realtor told stories about people buying houses they’ve never been in, making offers not contingent on inspections, paying cash for the amount above the appraised value of the home and more. 

“I want this house and I want it now” definitely seems to be a driving factor in the current marketplace.

4. Speculators are entering the market, driving up demand

Freshwater Land Trust
Rotary Trail in downtown Birmingham. Photo via Pat Byington for Bham Now

Janet Hamm said that this is happening in the Birmingham area, with flippers buying houses, fixing them up and flipping them for a profit.

She also explained that some investors see real estate as the safest place to put their money right now, so they’re investing in the housing market. 

Unfortunately, we don’t have any numbers to quantify what kind of impact this is having on the current market.

5. Yet, the financing is very different from the housing market bubble of the mid-2000s

While low interest rates help fuel demand, mortgage companies have the brakes on in a way that wasn’t the case in the run-up to the housing market crash in late 2007. Back then, according to Marc Scholl, it was way too easy for anybody with a job to get a loan, and sometimes for more than the entire cost of the house. 

Now, according to Jana Clark, “lenders are not loosening their requirements. Instead, buyers are dipping more into their own liquid assets, whether savings or 401Ks. It’s a really strong market, because the buyers are highly qualified.”

What this means: we’re not likely to see the kind of housing market crash in Birmingham that we saw in late 2007, when homeowners with no equity in their homes lost jobs, couldn’t pay for loans they shouldn’t have had in the first place, and foreclosed in record numbers. 

6. Still, at some point, Birmingham housing bubble or no, there will be a correction in the market

“If you look back through all the records, housing is cyclical. It goes up, it comes down. Prices go up, they come down. Interest rates go up, they come down. So everything is cyclical. But houses are still selling, and every day new houses come on the market. 

I don’t know if it’s a bubble. It’s just real estate.”

Janet Hamm

Everybody agreed that an increase in interest rates would cause the market to slow, though they didn’t foresee that happening any time soon. 

7. The Birmingham area is somewhat protected from a housing bubble

Birmingham housing bubble
When we look at the Greater Birmingham Area housing market, it extends far beyond downtown Birmingham, but we thought this was a cool picture. Photo via Jacob Blankenship for Bham Now

When I asked Norton, the numbers guy, why the Birmingham area’s price growth was slower than the national and state averages, he explained: 

“Inventory shortages in the Birmingham area (-29.7% Y/Y) are not as extreme as they are at the statewide level (-46.6% Y/Y). The Birmingham area also has a relatively larger housing supply at the moment with 1.8 months of supply compared to 1.4 in the state.”

Jana Clark from LAH also noted the uniqueness of the Birmingham area market: 

“Birmingham was very protected even back in 2007-2008. We really didn’t take as huge of a hit during that time as equivalent-sized cities nationwide. Our population stays about the same, and that helps maintain the businesses, the industry and what we have going on here. The beauty of Birmingham is how it can provide multiple price options for buyers.”

8. Be smart: if you’re trying to buy right now

Know that it’s an exciting time to buy, and everything “depends on timing of what happens in your world and when you decide to sell again.” (Jane Huston Crommelin)

Translation: if you’re looking to make a quick buck or sell within the short term, you may want to think long and hard about the risks you’re taking. If you’re wanting to buy and hold for a good while, your chances of riding out a potential market correction are higher.

9. The bottom line

“People will always buy and sell homes. Each year is just a different atmosphere in the market.”

Jane Huston Crommelin

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