As the end of 2021 nears, homebuyers and sellers are eagerly anticipating, or perhaps dreading, what the next year will have to offer in the Huntsville metro area housing market. This past year’s market has been particularly eventful with demand greatly exceeding supply, multiple offers placed on homes within a very short period of time after listing, and buyers bidding well above asking price.

This white hot real estate market raises questions about whether rising prices and low stock will persist throughout 2022 or whether the market will finally see a slowdown.

As of Dec. 13, 30-year fixed mortgage rates were as low as 2.750%. This does work in buyers’ favor, but home values have also risen dramatically in the past year.

According to a recent Huntsville Area Association of Realtors® (HAAR) report, the inventory of area homes rose from the second quarter to the third quarter, the first time this has happened in seven years.

While this sounds like good news for buyers, prices continued to increase significantly due to intense demand for homes. In addition, the number of affordable homes listed decreased dramatically over the past year: 170 homes were listed between $200,000-250,000 in the third quarter of 2020, whereas only 38 were listed during the same period in 2021, a 77.8% decrease. Home sales also decreased by as much as 39.5% for listings $300,000 and under, whereas they increased at all higher price points.

Almost half (48%) of homes sold in the third quarter of 2021 had a selling price above the listed price. The housing market will likely become even more competitive with the expansion of Redstone Arsenal’s workforce next year.

New home construction is key to meeting the needs of homebuyers, especially as the Huntsville and Madison County population continues to grow. However, changing construction material and shipping costs, the availability of rental properties, and other factors can quickly alter the momentum of the residential real estate market.

According to Huntsville Area Association of Realtors® (HAAR) and ValleyMLS.com CEO Josh McFall, the trends in the most recent economic report leads him to believe that all the challenges will not disappear in the first quarter of 2022. However, he expressed optimism that as inventory increases, homebuyers will see relief in both prices and buying options.

Robin Cotton of Crye-Leike Realtors and Robin Cotton Properties and Juli Gerrits of Leading Edge Real Estate Group echo this assessment, noting low inventory and fierce competition for housing contracts.

“We are seeing new construction speed up as supply chain problems ease,” Gerrits said.

In addition, there is still a backlog of prospective buyers, “be it those who put their plans on hold due to COVID, or frustration with the multiple offer competition as well as the ongoing influx of people newly relocating to here.”

It is nearly impossible to predict next year’s home prices given the uncertainty of the past year. McFall cited multiple factors that could influence future pricing: “If the pandemic continues to recede, if the global supply chain strengthens, if labor becomes more available, if lumber prices decline–all these and more can influence affordability and availability of housing.”

Cotton said she believes home prices will continue to increase, but added “The good news is, in my opinion, the Madison/Limestone County area has been undervalued for a very long time. I think we are just now valued properly.” Gerrits also foresees a continued increase in price, but expects to see prices “begin to calm, rather than the rapid, steep spikes we experienced in 2021.”

Realtor Monica Evans of Keller Williams Huntsville predicts that increasing lending rates over the next year will lead to a slowdown, resulting in less buying power for prospective homeowners and fewer bidding wars as well as fewer sales above and beyond asking price.

Evans also suggested that home values will hold steady, appreciating less aggressively due to increasing rates. “Over time, people will adjust to higher rates and if supply and demand remain as off-kilter as it is now values will remain strong.”

General consensus indicates that recent home price trends are not a repeat of the earlier housing bubbles and that the market will stabilize to some extent over 2022. McFall described the current market as “a completely different beast than what we saw pre-bubble in 2008,” noting that existing homeowners will continue to see a healthy return on their investment.

According to McFall, certain influences that factored into previous housing crashes are not evident this time, such as a high percentage of mortgages underwater and more extreme price increases. “HAAR can only look at trends to see where we’re going in the short term, but we are optimistic about the year ahead for both buyers and sellers across north and central Alabama.”

Cotton observed that unlike before, “this market is built on cash, a solid foundation. In the 1990s and 2007-2008 the market was based on bad lending practices–a castle built on sand.”

Another recent development is that “we have a lot of corporate investment gobbling up the entry level homes and turning them into rentals,” Cotton said. “If those investors disappear it will not leave a void. It will just make room for the first time homebuyers that have been pushed out of the market lately–they are eager and waiting.”

Gerrits noted that today’s housing market does not have underlying issues such as excessive risky lending and high unemployment that brought about earlier crashes. “Locally, we’re expecting thousands of new jobs and our cost of living is still below national averages, even following recent home price spikes.”

Evans stressed the importance of distinguishing between a bursting bubble and a market correction, saying “I believe a slight

correction (5 to 6 percent) is inevitable as the market has been hot for so long.”

For those currently in the Huntsville-area housing market or planning to be soon, Cotton and Gerrits advised sellers to buy before they sell if possible, acknowledging that although there is some risk, the seller will not be left scrambling for a place to live before they are able to find the right house. Gerrits added that rentals, including AirBnBs, are also in high demand and short supply.

According to Gerrits, this is the time for sellers to take advantage of the market: “Generally speaking, for sellers my advice is to do it now! The competition to buy a home in today’s market means buyers are not as particular, so even previously hard-to-sell homes are not lingering on the market for extended periods. However, that’s not to suggest they will get top dollar for a home in poor condition. It still needs to be priced right for location and condition.”

Evans also recommended that sellers wanting to capitalize on their homes should do so now if they want to downsize or absolutely need the cash. This comes with a caveat, however: “If you plan on buying again and want something similar to what you sold, it may not be a good idea as you will more than likely end up spending way more than you were paying before.”

As for buyers, Cotton said “Hire a professional. Make sure your agent knows how to write an attractive offer…You will quite possibly have to bid on several homes before you are successful. Don’t get your heart broken if you lose out on a house. Remember, you can make any house a home but a good neighborhood is priceless.”

Gerrits echoed the mantra of “Location, Location, Location,” cautioning buyers not to settle for a location they’re unwilling to accept long term. “Kitchens can be remodeled, but they can’t change their home’s location. I’ve been licensed since 1998 and have seen way too many hopeful sellers regret their purchases of just a few years earlier.” Buyers also need to take into consideration whether they will tire of their commute or prefer a different school district as children age.

Although rates are expected to increase, Evans’s recommendation is that buyers save as much money as they can in order to be more competitive against other cash-heavy buyers. She also advises longer term housing investments on the grounds that they are safer than shorter-term purchases since the chances of some volatility may be approaching.

McFall’s advice to both buyers and sellers is to “make sure you’re working with a Realtor®. They’re going to be your strongest voice, biggest advocate, and a professional advisor in the homebuying process. For most of us, our home is the largest investment we’ll make, and we should be hiring a professional to protect it. For buyers, be patient and prepared. For potential sellers, there’s never been a better time to list your property on ValleyMLS.com if you’re on the fence.”

Madison County data provided by HAAR.