Why does it matter when the FED raises interest rates?
30 Year Mortgage rates are currently sitting at 7.150%. Up 229%, from 3.11% in January 1, 2022.
Here’s an example of how interest rates affect homebuyers in your market.
In January 2022, a home buyer with a budget of $1,250 a month and a 3.5% down payment. Would be able to purchase a home up to around $300k.
Today, that same buyer paying $1,250 a month and putting 3.5% down, would only be able to afford a $192k home.
Great… People can afford less, what does this mean for my market?
Let’s look at a couple memorable markets from 2008.
These numbers are taken from the market peak to the market bottom.
2008: Home Prices were 9x the average annual wage.
Average cost for a home $334k.
2011: Home prices plummeted to 4.1x the average annual wage.
Average cost for a home $164k.
Which means Miami real estate plunged 49% in the ’08 recession.
Since the bottom, Miami has gradually increased back to a ratio even higher than in 2008. Sitting at 9.4x the average annual wage. Average cost for a home of $470k.
Miami’s historical average sits at 6.2x average annual wages. Which could mean a drop of $158k, a 33% decline in home prices.
2008: Home Prices were 8x the average annual wage.
Average cost for a home $291k.
2011: Home prices plummeted to 3.4x the average annual wage.
Average cost for a home $133k.
Which equates to 45% drop in home prices
Phoenix was one of the markets that was absolutely hammered in ’08 recession. The average home price in Phoenix didn’t return to the previous levels until January 2020.
Phoenix’s historical average sits at 5.4x annual wages. Phoenix sits at 8.5x the average annual wage, $472k average home value. Which could mean a drop of $171k, a 36% decline in home prices.
How does Birmingham housing market fair?
2008: Home Prices were 4.8x the average annual wage.
Average cost for a home $165k.
2011: Home prices dropped to 3.5x the average annual wage.
Average cost for a home $137k.
Leaving Birmingham Natives to lose a modest 17%.
Birmingham fully recovered from ’08 recession by mid‐2018. Currently Birmingham sits at a 4.7x price to annual wages, or average price of $247k.
Birmingham’s historical average of price compared to annual earnings stands at 3.9x. Assuming markets eventually revert to the average. Birmingham could see a drop of an average of $40k, which is a 17% drop.
Our beloved Iron City ranks #3 in the nation. Falling short to Pittsburg and Oklahoma City.
What about in terms of inventory?
August 2016: 6,798
August 2022: 2,570
Inventory is remarkably 62% lower than 2016 levels.
August 2016: 17,328
August 2022: 16,250
A minimal 6.3% lower than 2016.
August 2016: 45,296
August 2022: 22,800
A large 50% reduction in inventory.
Strongest Birmingham markets based on Housing Inventory declines YoY
1. 35203, ‐48% Inventory
2. 35209, ‐44% Inventory
3. 35226, ‐3% Inventory
Weakest Birmingham markets based on Housing Inventory increases YoY
1. 35228, +258% Inventory
2. 35235, +163% Inventory
3. 35005, +138% Inventor