Interest rates slowing local home sales, construction

Nov. 13—An increase in interest rates and the approaching holiday season have cooled home sales and construction in the Decatur area, but houses — particularly expensive ones — are still selling well.

Brian Dean, president of the Morgan County Association of Realtors and broker of Dean's List Realty, said his business continues to be "wide open" even though increased interest rates have slowed the market in the past few months.

"The interest rates changed what people can afford," Dean said.

For example, Dean said a buyer who may have previously been able to afford a $200,000 house probably now is looking at a house in the $185,000 range. Salary, credit scores, money available for a down payment and other issues affect affordability for individual buyers.

Valley Multiple Listing Service shows there were 133 homes for sale in Decatur during October, an increase of 44.6% over October 2021. In contrast, north Alabama is down 10.4% since last year, with 1,426 for sale.

However, new listings are down 29.7% from a year ago in Decatur with only 64 homes going on the market in the last month.

"Families are still moving to Decatur, Alabama," said Jeremy Jones, of Parker Real Estate. "We've been very blessed that people still need homes."

Jones said the change since interest rates have increased is people "are looking for the best rates and the best fee structure. People are more buyer-conscious in looking for value."

Blake Robbins, Synovus Bank mortgage loan originator, said rising interest rates "definitely slowed the market," although mortgage rates dropped slightly on Thursday.

On Friday, Robbins said interest rates were at 6 1/2 % to 7%, depending on the buyer's financial standing.

"Our customers are getting a little more careful and selective," Robbins said. "Over the last few months, they're taking more time to find what they want."

First-time homebuyers are being hurt the worst because interest rates and other economic factors are limiting the housing they can afford, Dean said. Valley Multiple Listing Service data shows that while sales of less expensive homes — those within reach of most first-time buyers — have been sluggish, sales of more expensive homes have increased significantly over last year.

MLS data shows 94 Decatur homes listed for $245,000 or more sold in October, a 49.2% increase over October 2021, and 26 homes listed for between $164,000 and $244,000 sold, a 116.7% increase.

However, only 11 homes listed for between $104,000 and $163,000 sold last month. This was the exact same number sold in October 2021. Only two listed for less than $104,000 sold in October, one-third the number sold in October 2021.

Construction slowing

Tom Polk, city Building Department supervisor, said his department is "generally active," but it's getting fewer inquiries about building permits. He is also receiving reports that contractors and developers are slowing down on building Decatur's new subdivisions.

More than a dozen subdivisions with plans for more than 1,500 new homes have been through or are in the city's planning and building approval process over the last three years.

"Some aren't working as fast as they were six to eight months ago so we have seen a slowdown," Polk said.

Marlon Morris, president of the Greater Morgan County Builders Association, agreed that contractors are slowing down.

"Some people who were planning on building have put off their plans," said Morris, owner of Majestic Homes. "They're continuing with infrastructure work (on new subdivisions), but now they're waiting on the interest rates to come back down."

Morris said supply and materials prices are keeping the cost of construction up even though they would like to drop prices to match the lower prices that buyers can afford.

"Copper and PVC are still high," Marlon Morris said. "Lumber is down a little, but it's not where it was two years ago."

Peyton Morris is developing and building Old River Manor subdivision with his grandfather, Howard Morris, and his father, Dennis, off Old River Road in Southeast Decatur.

Plans for this 19.75-acre subdivision include 58 single-family residential lots. Peyton Morris said they've finished about 15 homes in Phase 1, and they recently started on Phase 2, with the first home in this phase selling last week.

"We've definitely seen a slowdown, but we've been able to stay busy," Peyton Morris said. "At some point, interest rates have got to let up."

Increased interest rates don't only affect homebuyers, they affect developers.

Morris said the higher interest rates "make it tough to start a new project without using your own money, and that's hard to justify."

However, economists told The Associated Press last week that despite a slight easing of the inflation rate, they expect the Federal Reserve to raise interest rates by a half-percentage point in December to bring inflation down more. That increase, if it happens, would follow a string of three-quarter point hikes this year. Robbins said those increases push up mortgage rates.

Interest rates aren't the only factor weakening sales. Robbins said another issue is the time of the year.

"There is a slowdown during the holidays," he said.

Dean said another change in the market is that foreclosures are increasing, although they are not approaching the Great Recession levels seen in 2008 and 2009.

"I don't believe this is another bubble that's going to burst," Dean said.

— bayne.hughes@decaturdaily.com or 256-340-2432. Twitter @DD_BayneHughes.