Here’s what local experts anticipate for the 2024 housing market in Birmingham

Recently, mortgage interest rates made national headlines after rising above the 7% mark. The news was a disappointing blow to potential homebuyers, many of whom were hoping rates would decline after several tumultuous years on the high end.

Bham Now spoke with several area experts to learn more about the state of the Birmingham housing market—and what’s in store for the rest of 2024.

Why are housing prices so high?

To understand why housing prices are so high in 2024, let’s rewind the tape back to 2020. Amid the COVID-19 pandemic, the Federal Reserve attempted to encourage economic growth by dropping interest rates to record lows. In January 2021, rates reached an all-time low of 2.65%.

“During the ‘pandemic housing boom,’ there was a massive amount of home-buying activity encouraged by the historically-favorable interest rates. Since then, housing inventory has remained tight largely due to the lock-in effect. During the pandemic, many people ‘locked in’ mortgate rates that are much more favorable than current rates—now, they don’t want to move and lose their rate.”

Stuart Norton, Research Coordinator, Alabama Center for Real Estate (ACRE)

Despite being “small” numbers, interest rates play a massive part in how much a homebuyer will spend over the life of their mortgage. Say a bank lends you $300,000 to buy a home.

• At 2.98% interest (the record low), your monthly mortgage payment would be $1,262 and you’d pay $154,168 in interest over the life of a 30-year loan.
• At 7.798% interest (current rates), your monthly mortgage payment would be $2,159 and you’d pay $477,460 in interest over the life of a 30-year loan.

Put simply, higher interest rates make it more expensive for homebuyers to borrow money for their mortgage.

In the years following the COVID-19 pandemic, the Federal Reserve hiked up interest rates in an effort to curb inflation. Recently, rates for a 30-year fixed mortgage rose over the 7% mark and currently rest at 7.798%.

However, these higher rates have made it difficult for many to afford a home—especially first-time homebuyers, who can’t rely on the equity of a current home to help make a down payment.

To make matters more difficult, some homebuyers took advantage of the lower COVID-era rates to buy secondary, recreational properties. According to Ingram & Associates, places like the mountains, the beach and lakeside retreats like Lake Martin experienced an overwhelming amount of home sales.

“Home inventory remains at historic lows right now across the country. Many homeowners with current mortgages below 5% are feeling locked-in to their current situation unless a major life change occurs. But there are hopeful signs on the horizon with new construction looking up with the lower mortgage interest rate outlook for 2024.”

Jim Dye, Chief Operating Officer, RealtySouth

New home construction can help fill that gap

Although the supply of existing homes has stagnated, new home construction is helping to fill that gap. According to Ingram & Associates, 1,575 new houses were built in the Birmingham area in 2022; representing 11% of the housing market. In 2023, that number jumped to 1,714 new houses—14% of the market.

“In the Birmingham Metro, we’re looking at about three months’ worth of existing home inventory. However, with a market our size, we really should be looking at five-and-a-half months. We’re hoping that, when enough new construction comes on the market, people will get excited enough to put their exisiting home on the market, creating a domino effect.”

Brian Sparks, Partner, Ingram & Associates

How will the Birmingham housing market change in 2024?

If you’re hoping for a significant drop in Birmingham housing prices in 2024, don’t hold your breath.

“We’re expecting moderate home price to appreciation in our area this year with more positive news being that mortgage rates finally began to cool off late in 2023 and have been holding relatively steady in 2024 this far. We’re looking forward to an improving housing market in 2024 as interest rates start to settle in the 6% range or possibly lower later in the year. “

Jim Dye, Chief Operating Officer, RealtySouth

However, much of the housing market’s stability is influenced by the current interest rates. Should the Federal Reserve lower rates as many experts predict, people sitting on their homes would be encouraged to sell and buy a new property—creating that domino effect.

“If we assume that interest rates stabilize where they are now in the mid-6’s, you’re to see more people accept that as the new normal. However, if the Federal Reserve starts adjusting rates, that will start to pique the interest of both home sellers and home buyers. They’ll want to take a step back and see how far the rates fall.”

Bennie Waller, Research Associate, ACRE

What do you expect to see in the Birmingham real estate market in 2024? Tag us @bhamnow to let us know your thoughts.