Real estate spotlight: Housing market regains steam after 2022 slowdown

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The housing market in Trussville slowed down some in 2022, but as interest rates have dropped back down a bit this year, activity is picking back up, people in the industry say.

The number of home closings in Trussville fell 10% in 2022 from 794 to 713, data from the Greater Alabama Multiple Listing Service shows. The 2022 numbers were 15% below the 850 home closings in 2020, when record-low interest rates spurred a flurry of sales.

Of the 713 home closings in 2022, 536 of them were existing homes, which is down 12% from 611 closings on existing homes in 2021, data shows. Meanwhile, new home closings in Trussville have remained stable over the past five years, with 188 in 2018, 183 in 2019, 182 in 2020, 183 in 2021 and 177 in 2022.

The biggest reason for the overall decline in home sales is the rise in interest rates, real estate agents 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.

But 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, said Kevin Sargent, an associate broker at ARC Realty’s office in Trussville and secretary for the Birmingham Association of Realtors.

Housing became less affordable, and some of those people who were looking for a housing change more out of desire than necessity backed off their search, Sargent said.

Lee Marlow, a Realtor in RealtySouth’s Trussville office, agreed.

“It got kind of quiet in October when rates started going up. The market kind of stopped. It slowed down a good bit,” Marlow said. Rates were increasing rapidly, “and it was kind of scary a little bit for everybody.”

But as rates began dropping from the 7% to 8% percent range to the 5.5% and 6% range again early this year, activity has picked back up.

Based on the number of phone calls and meetings occurring, “I think it’s going to be a really strong year here,” Marlow said. “I think the market is very slowly normalizing.”

STRONG DEMAND

Demand for housing in Trussville continues to be strong, Realtors and builders say.

“Trussville continues to do very well,” said Jonathan Belcher, president of Signature Homes, which had 49% of the new home closings in Trussville last year. “It’s a very attractive community for new homes and existing homes. It’s a great community with great schools.”

The city is close to all the amenities and jobs in Birmingham and has been adding more restaurants and areas like the entertainment district, Sargent said. City leaders have been working to revitalize the downtown area and expand amenities such as parks, trails and green spaces, Marlow said.

“There’s a lot to offer families where they don’t have to leave Trussville to go find it somewhere else,” she said. “There’s something to offer everybody.”

The problem is that the housing inventory is low. At the beginning of this year, there was less than a three-month supply of new homes on the market and only about a month’s supply of existing homes, MLS data shows.

“We need more inventory. We need more homes to sell,” Marlow said.

The low inventory and strong demand have been factors in prices continuing to increase. The average price for new homes in Trussville rose 11% in 2022 from $432,002 to $477,605, while the average price of existing homes was up 14% from $334,379 to $380,909, MLS data shows.

Just four years prior — in 2018 — the average price for a new home in Trussville was $344,562, while the average price for an existing home was $255,708.

These price increases for 2022 came despite higher interest rates, which shows that the economy in Trussville is strong, Belcher said. “I was shocked at the number of homes selling for over $500,000 versus two to three years ago,” he said.

Taking home size into consideration, the price per square foot for new homes in Trussville rose from $134 per square foot in 2018 to $162 per square foot in 2021 and $186 per square foot in 2022. For existing homes, the price per square foot rose from $109 in 2018 to $140 in 2021 and $158 in 2022.

Strong demand wasn’t the only reason for price increases. The cost of building materials also has risen. The cost of lumber in 2020 and 2021 was 37% above historical averages, according to the National Association of Home Builders. Other building materials such as concrete, gypsum and steel also saw rapid price increases during that time.

WHAT HAPPENS NEXT

Now that interest rates have dropped again, the outlook is positive for 2023, Sargent, Marlow and Belcher said. “I expect 2023 to be stronger than 2022, but not by a lot,” Sargent said.

Marlow said there is some pent-up demand from people who backed off to watch the market this past fall and now are ready to move. It would help to have more inventory to show them, and it would be nice to get a little more variety of housing types when it comes to new construction, she said. She’s hearing from people who are interested in homes with basements instead of just a slab on top of the ground, as well as a desire for more starter homes, she said.

JR Malchus, Trussville’s building official, said building permits were down from the previous year for the months of November, December and January — from 33 to 22.

Some of that is because builders finished up the last of available lots in the Winslow Parc and Halcyon communities in 2022, and Harris Doyle Homes ran out of approved lots in Longmeadow, Malchus said.

However, Harris Doyle is about to start a new phase of Longmeadow, and Trussville Springs is about to start another sector, he said. Additionally, Little Goose Development is about to start building on 70 lots along Husky Parkway, Malchus said.

Belcher said Signature Homes has less than 40 lots to sell in Stockton and likely will finish up in that community this year. There also are available lots scattered all around town, Malchus said.

There is plenty more land in and around Trussville for development, but people are asking a lot of money for their land and a lot of it is hilly, which makes development more complicated, Malchus said.