Home sales in Alabama increased in the month of July, as the real estate market prepares for interest rates to drop. But uncertainty heading into the fall could stop that momentum cold.

“The market is ripe for activity, waiting for the pieces to fall into place,” Bennie Waller, a professor of finance and real estate at the University of Alabama said. “There’s a lot of pent-up demand for selling or buying.”

According to the Alabama Association of Realtors’ July real estate and economic report, across the state there were 6,316 home sales in July, a 13.1% increase from June of this year and a 0.9% increase from July 2023.

The number of home sales in the state has increased for the last six months, though this is the first month that sales have increased year-over-year since January 2022, after the Federal Reserve began increasing interest rates to tame inflation in early 2022.

The Federal Reserve is expected to cut interest rates at its meeting in September, according to PBS.

Mortgage rates in the state declined in July, as banks expect falling interest rates. The average 30-year, fixed-rate mortgage rate in the state declined 22 basis points over the month of July, from 6.95% to 6.73%, according to the AAR report.

The median sales price for homes sold in Alabama in July was $233,216, a 2.3% increase from July 2023. That’s the highest median home price in the state in almost two years.

The number of active residential listings increased in July, to 17,368. That represents a 41.7% increase year-over-year and a 4.9% increase from June to July, and it’s the highest number of listings since January 2020.

The AAR report says the market in Alabama had around 3.9 months of supply in July, a 30% increase from last year but a decrease from June, when there were 4.3 months of supply.

The Alabama Association of Realtors expects home sales to increase over the next few months, as buyers adjust to the high mortgage rates and pent-up demand.

“The consistent growth over the past six months shows that demand for homes in our state remains strong and Alabama’s economy remains robust,” Jeremy Walker, CEO of the AAR, said. “As the market continues to strengthen, the state remains a prime location for homebuyers and investors alike, especially when supported by an increasingly favorable mortgage rate environment.”

Waller agrees but cautions that some changes coming could lead to a cooler market than expected.

First, the forthcoming presidential election injects some uncertainty into the market, he said. Studies have shown that people tend not to buy when an election is happening because of the uncertainty.

“Everybody is biting their fingernails,” Waller said. “It throws a wet blanket on what would otherwise be a very hot market.”

In addition, a $418 million class action settlement agreed to by the National Association of Realtors in the spring is predicted to dramatically change how home buying works in the U.S., as it’s widely expected that buyers will have to start paying agent commission themselves, and commissions will be more negotiable.

Those changes took effect on August 17, and final approval of the settlement will come in November, according to the NAR.

Waller predicts that the new changes to real estate commissions will disproportionately impact middle-income buyers, who will have to come up with commission costs in addition to a down payment, creating more uncertainty in the housing market.

“The down payment is already the most prohibitive thing for buying a home,” Waller said. “Add another 3% to that, it becomes even more so.”

Waller said he’s confident that interest rates will be dropped in September. The AAR report states that a cut of 25 basis points (0.25%) is the most likely scenario. But a lot could happen between now and September, he said.