Real estate spotlight: Low inventory causing slight market slowdown

The residential real estate market in Mountain Brook slowed down a bit in 2023 compared to the previous year, but it’s not because the market declined.

The total home closings in Mountain Brook declined slightly from 404 single-family homes in 2021 to 357 in 2023, but according to Katie Crommelin, a realtor at Ray & Poynor, it’s due to there being fewer homes on the market.

“When there are fewer listings, you can see the correlation between less available units for sale going for higher prices because the demand is so large,” Crommelin said. “When someone says the housing market is on decline because there were fewer units sold, that’s not really accurate for us. There's less inventory available and as a result, it’s driven up the price of the homes. The demand is still there, that’s the bottom line.”

The average home sale price in 2023 was $1,026,819, compared to $992,529 in 2021. Average days on the market for both years were between 11 and 18.

 Over the last six months, homes for sale have averaged 16 days on the market. Crommelin said peak rates hit at the beginning of last summer as well as the number of days on the market.

“In June and July things slow down, so it’s hard to say if it’s the rates or time of year,” she said.

TRENDS OVER THE PAST 5 YEARS

In 2018, there were 378 existing homes and nine new homes for sale; in 2019, there were 447 existing homes and nine new homes for sale.

In 2020, the pandemic didn’t have a huge effect on the housing market in Mountain Brook, with 416 existing homes for sale and seven new homes for sale; in 2021, the market stayed mostly steady, with 428 existing homes and only three new homes for sale.

2023 saw the lowest numbers of the past five years for existing homes for sale, at 351, and an additional six new homes for sale.

The price per square foot for new home construction in Mountain Brook rose from $206 per square foot in 2018 to $288 per square foot in 2023, MLS data shows. The cost for existing homes also has risen over the past five years. The average price for an existing home in the city rose from $733,366 in 2018 to $1,026,819 in 2023.

Crommelin said that from Feb. 7, 2023, to Feb. 7, 2023, more than 300 homes were sold in Mountain Brook, staying on the market an average of 11 days.

“There are some that have been on the market for a long time, mostly those over $2 million,” she said. “The higher the price, it reduces the pool of buyers able to purchase that home and the longer it can stay on the market.”

In Mountain Brook, real estate is a supply-and-demand issue. We have a lot of demand and not enough supply to meet it. When houses come on the market, they still move very quickly. Some are still selling over the asking price in the first few days.

Katie Crommelin

IMPACT OF INTEREST RATES

Some realtors and builders say the biggest reason for the decline is the rise in interest rates. However, Crommelin said even though the rates have increased, they are still very low compared to historical numbers.

“Houses were sold every day when interest rates were 18%,” she said. “Even though right now to us the rates feel elevated, the fact is they still are very low. … Instead of seeing a larger impact caused by interest rates going up, we've continued to see very high demand, which has meant less effect caused by those rates.”

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 lesser price and afford a bigger house.

But the Federal Reserve steadily raised short-term interest rates throughout 2023 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 Federal Reserve lists the current interest rate in the U.S. at 4.5%.

STRONG DEMAND

According to Crommelin, there is such limited inventory in Mountain Brook that currently the city is still at a moment where there is very high demand for homes.

“In Mountain Brook, real estate is a supply-and-demand issue,” she said. “We have a lot of demand and not enough supply to meet it. When houses come on the market, they still move very quickly. Some are still selling over the asking price in the first few days.”

As of Feb. 7, there were 19 single family homes for sale in Mountain Brook. Of those, six were under $1 million and four of them were new construction.

Crommelin said the spots where new construction is taking place are Moss Creek Circle — a new development off Old Leeds Road — along with some on Mountain Park Drive and one on Euclid Avenue.

“What we have within the city limits is it,” she said. “We don’t have hundreds of acres of land able to develop.”