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Home sales, prices down in September as interest rates remain high

Decades-high mortgage rates continue to affect home sales and prices in Alabama, and to a small extent, a General Fund revenue stream.

September saw 5,918 home sales in Alabama, down 35.7% from September 2022. Total sale volume decreased by nearly $1 billion to $1.3 billion, according to a monthly report from Alabama Realtors. And the average sale price was down 5.1% to $231,898.

“Continued increases in mortgage rates have inevitably had a negative impact on housing prices and the overall market,” Jeremy Walker, CEO of Alabama Realtors, said in a written statement this week.

There were 13,603 home listings statewide in September, an increase of 13.9% from a year prior.

According to the report, the average 30-year fixed rate mortgage rose to 7.57% in mid-October and marked the ninth consecutive week with rates above 7%. This is the first extended period with rates above 7% in more than two decades.

Interest rates aren’t expected to drop significantly anytime soon.

In its drive to tame inflation, the Federal Reserve has raised its key rate 11 times since March 2022 to about 5.4%, its highest level in 22 years. Though inflation has tumbled from its peaks of last year, it still has further to go to reach the Fed’s 2% inflation target. Doing so is likely to require slower economic growth.

If the healthy economic expansion and hiring endure, Fed Chair Jerome Powell said last week, the central bank might have to further raise its benchmark rate. The Fed’s long series of rate hikes have raised the costs of auto and home loans, credit card borrowing and business loans, imposing financial burdens on many households and companies.

Those interest rates also affect state revenues.

For fiscal year 2023, which ended last month, mortgage tax revenue to the General Fund was down 37.2% to $21.1 million, according to state records.

It was one of the notable declines in the General Fund that was up 16.6% in 2023. The mortgage record tax, a fee on mortgages or other real estate contracts, is $.15 for each $100 of indebtedness.

“The Federal Reserve’s impact on mortgage rates spans far beyond the housing market in Alabama and impacts our state General Fund,” Walker told Alabama Daily News.

While interest rates have slumped revenues for that tax, they’re credited for the massive spike — and most of the growth in the General Fund last year — in another.
Of the more than $461 million increase, $364.2 million came from increases in interest on state deposits, a 902% jump, ADN reported earlier this month. When the Federal Reserve drops the interest rate, that revenue will decline.

The Associated Press contributed to this report.

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