Huntsville Interest Rates Are Rising

The Fed announced six interest rate hikes in 2022. The question is what will rate hikes mean to the Huntsville real estate market and are we going to see a real estate crash this year? Before we answer that, let’s recap on what created this historic sellers market with both record low inventory and record appreciation.

The Cause

#1 - Housing Deficit

We have a 5.5 million home deficit in this country that dates back to the 2008 housing crash. Builders slowed down the supply of new homes in this country but we continued to have family formations which created that 5.5 million home gap.

Due to this deficit, we now have record low supply of about 800,000 homes nationally. Normal supply is anywhere between 2 to 2.5 million homes so we're at about one-third of the normal supply we have nationally.

#2 - Increased Demand

We have a record number of millennials that are starting to enter this housing market, which is creating increased demand.

#3 - Investors

Nationally, one in four homes are being bought by an investor right now which is definitely hurting first time homebuyers competing for new homes. It's one in four nationally, but in some areas it's as high as one out of three or even one out of two. 


Matt’s Take

The only solution is to build more homes. However, it's not going to be easy to increase that supply. Homebuilding is actually expected to decrease in 2022. The reason for that is two things; supply chain challenges and increased interest rates.

The last time that we hit 5% interest rates, demand slowed due to affordability. That also increases the rate that it costs homebuilders to build, which will also likely decrease the supply of new homes in this country.

We're starting to see a slight slowdown nationally in sales volume. Pending home sales were down 4.1% in February and 5.4% year over year. With the number of home sales being down, prices are actually still red hot but why? Because of the housing shortage. I've actually heard estimates that it could take ten to nineteen years to fix this housing supply. 

Interest rates will start to cool off demand but for all the wrong reasons. Entry level buyers will be priced out due to higher prices and higher interest rates, which will create an affordability crisis for these entry level buyers and overall sales volume is likely to slow down.

But don't let that fool you, prices aren't coming down due to both inflation and lack of supply. An article from Forbes recently summed it up, “If you're thinking of waiting until home prices drop, don't you might end up renting forever.”


Posted by Matt Curtis on


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