During the Spring the most frequently asked question was “When is this crazy market going to slow down?”. Now that question is “Has the market changed?”. As we all know, we have been in an extremely robust market that was driven by low rates and often the desire to get in a “pandemic home” that fit new needs. Sellers were often getting multiple offers above asking price and were able to buy their next home at a record low rate (if they were fortunate enough to find something). As housing inventory got snapped up by aggressive buyers, many, exhausted by bidding wars and constant disappointment, decided to remodel, add on, stay put, and/or buy a second home. The (real) fear of not being able to find anywhere to go or having to pay more than they thought reasonable often caused those who were on the fence to sit on the sideline.
Then inflation hit, and, it turns out, that it wasn’t temporary as we all had hoped. Rapidly increasing fuel prices, struggling supply chains, and widespread inflation became a serious economic issue. In an effort to mitigate the strong and persistent inflation, the Federal Reserve aggressively raised rates in the first half of 2022. Mortgage rates doubled during 2022’s peak buying season. Buyers’ affordability dropped and, if the move wasn’t necessary, it was reconsidered. We have officially moved to a more normal and balanced market where there is more reasonable demand and the Seller isn’t sitting on all of the leverage. Scarcity of homes is slowing turning to more availability at more conventional terms and conditions.
The good news is that a more rational and sound market is here – a market where Sellers are considering Buyer requests on timing, diligence, and contingencies. Buyers using conventional financing will be able to compete in a market where cash buyers aren’t as prevalent. In most of the Birmingham market, Buyers will no longer have to agree to bridge appraisal gaps and will no longer be bringing cash over appraised value to closing.
Now the new concern and question is this – How many Sellers are willing to let go of a mortgage at 3% and pay 6% for their new home? So far, this has made people reconsider both listing and buying – people are really starting to think through the decision rather than just putting the house on the market “just to see” how high it can go. Fortunately, homeowner value has held steady and we are not seeing many pricing adjustments yet. New rates are going to be an adjustment for buyers on about all ranges of homes in the Birmingham market, but lenders who have been through rate increase cycles predict an adaptation will happen and that the slowdown might be softer than harsher. Most of the appreciation from the last few years may stick if inventory stays tight and as Buyers adjust to new rates.
Due to its relative affordability, strong employers, lack of overbuilding, and a positive influx of relocating professionals & retirees, Birmingham is showing itself to be a healthy market and is likely to be more steady than others. I will keep you posted and always give my honest opinion. Regardless of the market, the same fundamentals apply – When buying, be diligent and disciplined. When selling, be strategic and market well. As always, give this investment decision the respect it deserves.