For the start of the campaign, you can use any Player’s Handbook race. The descriptions of each race provide a lot of flavor already so give them a good read. None of the entries from the MM are allowed.
Most of Fallcrest’s people are human. Characters with rural backgrounds likely grew up on the farms in the nearby Moon Hills. Characters with an urban upbringing might be the children of well-off landowners such as the Kamroths, or ruffians and sellswords who had a hard childhood in Lowtown.
No dragonborn are native to Fallcrest, but travelers occasionally pass through and take up work for a time, especially as bodyguards or caravan guards, particularly in the dwarven town of Hammerfast. The Halfmoon halflings, House Azaer, and the importer Naerumar may also have work available for a capable adventurer.
A fair number of dwarves live in Fallcrest, so a dwarf character could easily be a native of the city—perhaps a relative of Teldorthan Irontooth. If not, the nearest dwarven homeland is Hammerfast, a week’s travel distant. Merchants and crafters from Hammerfast travel to Fallcrest to trade or work, lodging in one of the local inns for a few weeks.
Eladrin are not often seen in Fallcrest. Some of the old manors in the Moon Hills and the nearby parts of the Vale were once the homes of well-off eladrin families.
Elves are also scarce in Fallcrest, but a small number reside in and around the town. Ressilmae Starlight of the temple of Sehanine might be a relative or an old friend of an elf character. Elves from outside Fallcrest might belong to the Woodsinger clan from the Harkenwold Forest.
A small number of half-elves reside in Fallcrest or the vicinity. Most are well-off farmers or herders are living in the Moon Hills near the town; the rest are expert artisans
- jewelers, tailors, or woodworkers - in the town. A half-elf player character can be the child or relative of a Fallcrest family.
Halflings are the most numerous people in Fallcrest aside from humans, and they come from any walk of life. A Fallcrest native might be related to the Halfmoon family, the Ostermans of the Silver Unicorn, or the Thistletons of Fallcrest Stables. Halflings descended from the traders who pass through Fallcrest can be members of the Swiftwater clan.
Two tiefling families (the Azaers and the Naerumars) and a few individuals live and thrive in Fallcrest.