Alabama Real Estate Market Trends & Analysis

The Alabama real estate market may be summed up in one word: affordability. Despite median home values increasing for seven consecutive years, low interest rates and improvements made to the state’s median family income levels have made it easier for more people to actively participate in the housing market. At this point, it’s actually cheaper to buy a home in most parts of Alabama than to rent one.

It is worth noting, however, that the latest increase in affordability coincides with a significant caveat: homeownership has become so attractive across the entire state that inventory levels are suffering. For the better part of 2019, existing inventory levels were unable to satiate demand. A great deal of prospective buyers are stuck on the sidelines, which bodes incredibly well for local real estate investors who are able to find and acquire deals. The combination of affordability and demand suggests Alabama may be a great place to invest for the foreseeable future.

The Top Alabama Real Estate Markets

While the best real estate market in Alabama is up for debate, here’s a list of the cities investors may want to pay special considerations to:

• Birmingham

• Huntsville

• Mobile

• Montgomery

• Tuscaloosa

• Auburn

Alabama Real Estate Fees & Regulations

Real Estate

Closing Conducted by:	Attorneys, Title Companies
Conveyance:	Warranty Deed

Foreclosure Procedure

Primary Foreclosure Method:	Non-Judicial
Process Period:	1 - 3 months
Notice of Sale:	Trustee
Redemption Period:	Up to 12 Months

Taxes

Income Tax:	2.0% - 5.0%
Corporate Tax:	6.50%
Sales Tax:	4.00%
Estate Tax:	No
Inheritance Tax:	No
Median Property Tax:	0.33%
Property Taxes by County:	http://www.tax-rates.org/alabama/property-tax#Counties

Average Transactional Costs

Closing Cost:	$2,613
Transfer Fee:	Deeds 0.1%; Mortgages 0.15%
Origination Fee:	$1,967

Alabama Housing Market Overview

• Median Home Value: $132,800
• 1-Year Appreciation Rate: +4.6%
• Median Home Value (1-Year Forecast): +2.1%
• Median Rent Price: $1,050
• Price-To-Rent Ratio: 10.53
• Average Days On Market: 86
• Percent With Negative Equity: 14.8%
• Unemployment Rate: 3.3% (latest estimate by the Bureau Of Labor Statistics)
• Population: 4,887,871 (latest estimate by the U.S. Census Bureau)
• Median Household Income: $46,472 (latest estimate by the U.S. Census Bureau)

Alabama Median Home Prices

The Alabama real estate market, much like the rest of the country, has seen its prices rise almost exponentially for the better part of a decade. Due largely, in part, to drastically improved economic indicators, growing confidence in the real estate industry, and a distinct lack of available inventory, price increases in Alabama have kept pace with national trends.

The median home value in the Alabama real estate market is roughly in the neighborhood of $132,800. About seven years ago (August 2012), when the first signs of a recovery surfaced, real estate in Alabama had a slightly more modest price tag: $97,100. Since then, median home values in Alabama increased 36.7% to get to where they are today. To put things into perspective, the median home value in the United States increased approximately 53.0% over the same period. Over the last year, however, Alabama’s appreciation rates were more in line with national trends—4.8% and 4.9%, respectively.

In spite of historical appreciation rates, real estate in Alabama has maintained its status as a sought-after commodity. As recently as August, real estate in Alabama spent an average of 86 days on the market, the fewest the state had seen in more than two decades. Homes in Alabama are selling nearly twice as fast as they were in 2014, when it took about 156 days (on average).

The latest numbers provided by the University of Alabama’s Culverhouse College of Business suggest the state only has about 3.4 months of supply, which is the lowest Alabama’s inventory has been since at least the turn of the century. Inventory levels have gradually declined since 2010, when they were as high as 13.9 months. Coincidently, the decline in inventory roughly coincides with the earliest stages of the latest recovery. It is worth noting, however, that the homes that wind up on the market aren’t lasting nearly as long as they were just a few short years ago.

Not surprisingly, demand started increasing at the same time inventory started dropping in 2010. Since then, improvements in the economy have allowed more and more buyers to enter the market, which has gradually increased the number of total sales in Alabama for nine consecutive years. Total sales are up 8.0% year-over-year, and now sit at approximately 6,317; that’s more than twice as many sales as in August of 2010.

To be perfectly clear, many of the same indicators present in Alabama mimic those of the national real estate market. The current state of the Alabama housing market is directly correlated to a simultaneous increase in demand and decrease in available inventory; there simply aren’t enough homes to satiate the sheer volume of buyers. As a result, sellers have been able to increase prices accordingly. Nonetheless, prices in Alabama are still relatively affordable, and represent a unique opportunity for local real estate investors.

Alabama Median Rent Prices

With a price-to-rent ratio of approximately 10.53, it is actually cheaper to own than rent in most of Alabama. Again, the entire state of Alabama has developed a reputation for offering affordable housing. That said, the same affordability that has become synonymous with buying a home in Alabama has transitioned seamlessly over to the rental market. The median rent price in Alabama, for example, is considerably cheaper than the median rent price in the United States—$1,050 and $1,700, respectively.

The variance is perhaps most notable in Alabama’s biggest cities. Rents in Alabama’s largest metropolitan areas (where landlords traditionally charge more) are significantly below the national average. With a median rent price of $1,400, Auburn currently ranks as Alabama’s most expensive city to rent in, which is still $300 below the national average. The median rent price in Birmingham, Alabama’s most populous city, is $850. Even Montgomery, the state’s capital, boasts a median rent price of $895.

At the beginning of 2019, the median rent price in Alabama was $1,035. However, as homes appreciated and demand increased over the course of the year, so too did rental prices—albeit modestly. Since January, rents have increased a modest 1.0%. Home prices, on the other hand, have increased approximately 2.1% over the same period of time. The slower rate of rental increases isn’t necessarily an indictment on the rental industry, but rather a vote of confidence for the housing sector as a whole. More buyers are actively participating in the market thanks to a strengthening economy and affordable housing. Nonetheless, inventory remains tight, which bodes well for local landlords and Alabama real estate investors. The growing population of buyers who can’t find a home will be forced to rent for the time being; more importantly, however, they can afford to do so.

Alabama Foreclosure Trends & Statistics

According to RealtyTrac, a nationally recognized real estate information company that specializes in distressed properties, Alabama has a relatively high distribution of foreclosures. With approximately one out of every 2,637 homes in some stage of duress (default, auction or bank owned), Alabama’s foreclosure rate is a modest 3.7%; that’s slightly lower than the national average, which is about 3.9%, and considerably lower than Delaware (the state with the highest foreclosure rate), which is 9.0%. However, Alabama’s foreclosure rate is higher than its neighbors Mississippi and Tennessee—2.4% and 2.5%, respectively.

“In August, the number of properties that received a foreclosure filing in AL was 4% lower than the previous month and 24% lower than the same time last year,” according to RealtyTrac. The decline in foreclosures is most likely attributed to recent improvements in the local economy. Unemployment, in particular, has declined for the better part of a decade. According to the Alabama Department of Labor, the state’s “seasonally adjusted August unemployment rate is 3.1%, down from July’s rate of 3.3%, and well below August 2018’s rate of 3.9%. August’s rate represents 2,184,511 employed persons, also a new record high, measuring 68,033 more than last year’s count, and 12,757 more than last month’s count.” As a result, Alabama saw its labor force increase in August—to a record high, nonetheless.

More and more people in Alabama are not only finding work, but also work with higher wages. Three sectors, in particular, have contributed more to higher employment rates and wages: the professional and business services sector, the leisure and hospitality sector, and the trade, transportation, and utilities sector.

Thanks, in large part, to a stronger economy, fewer Alabama homeowners are finding themselves underwater or distressed. While foreclosure activity is on the decline, it hasn’t completely ceased. There are several pockets across the Alabama real estate market with higher distributions of foreclosures than others. Here’s a list of the five counties with the most foreclosures in Alabama:

• Elmore (1 in every 1,352)

• Montgomery (1 in every 1,485)

• Jefferson (1 in every 1,586)

• Geneva (1 in every 1,595)

• Russell (1 in every 1,598)

Tax Lien Investing

• Tax Lien or Deed: Tax Lien and Tax Deed state

• Interest Rate: 12%

• Redemption Period: 3 years

Alabama Real Estate Investing

Real estate investing in Alabama thrives in the face of affordability. The median home value in Alabama is, after all, considerably lower than the national average. Investors with modest budgets are awarded the opportunity to practice just about any exit strategy they like. As opposed to states like California and New York, where investing in real estate costs a small fortune, Alabama real estate investors find themselves with a lower financial barrier to entry.

The real benefit of investing in Alabama isn’t simply relegated to traditional acquisitions, but rather the plethora of distressed homes made available to resourceful entrepreneurs. With a 3.7% foreclosure rate, Alabama’s housing market is on solid footing, but still offers a great deal of opportunities for investors to acquire deals below market value.

Auction homes, in particular, appear to be the single greatest source of distressed homes in the entire state. Of all the foreclosed properties identified by RealtyTrac, 77.3% are either up for auction, or will be at some point in the near future. Therefore, anyone interested in investing in Alabama will want to inquire with local real estate auctioneers. If for nothing else, investing in Alabama real estate is just like anywhere else; it’s a numbers game. If local investors want to increase their chances of landing a property at a discounted price, they should look in the places where they are most likely to find distressed assets: auctions

The ability to acquire deals under market value, in association with increasing demand, has made real estate in Alabama a commodity; one that—if treated with care—can net a great return on investment. With that in mind, however, the same demand and affordability that has made investing in Alabama so attractive has also revealed the exit strategy with the most potential: rehabbing. As it turns out, there is more demand for buying than renting, which bodes incredibly well for “fix and flippers.” While there is certainly a market for landlords and passive income investors, current market conditions favor rehabbers who may be able to take advantage of today’s appreciation rates.

Alabama Housing Market Predictions

Predicting the housing market without any degree of error is a fool’s errand, even in a state with the positive momentum Alabama has managed to generate; there’s always going to be at least a slight margin of error. Nonetheless, it is good practice to make well-informed, educated guesses. Maintaining a pulse on where the market currently rests, and where it’s going, will help real estate investors in Alabama maintain an edge over the competition. With that in mind, here are some of the Alabama housing market projections I feel are more likely to pan out:

• Improving economic conditions and low interest rates will continue to facilitate an active housing market: Not unlike the majority of markets across the country, Alabama is a lot better off today than it has been in years past; that, combined with a stronger economy and historically low interest rates should promote homeownership on a higher scale. As a result, the entire market should see a lot more activity, which bodes well for everyone involved in transactions for the foreseeable future.

• Despite historical appreciation rates, the Alabama real estate market will remain relatively affordable: Alabama real estate trends have kept pace with national trends, and year-over-year appreciation rates are no exception. 2019 marks the seventh consecutive year of appreciation in Alabama, but the state maintains a relatively affordable housing industry. In fact, it’s actually more affordable to own in most parts of the state than it is to rent. That said, there’s nothing to suggest the trend won’t continue, and real estate in Alabama should continue to remain affordable, despite increases in prices.

• Inventory constraints will continue to increase median home values for the foreseeable future: In the third quarter of 2019, Alabama had about 3.4 months of available inventory. A balanced market, however, typically has about six months, which suggests Alabama has a little less than 50% of the inventory it would like to see. As a result, competition will continue to increase over the homes that are listed, and prices will rise accordingly. Easement is on the way, but today’s inherent lack of available homes will push prices higher for at least the foreseeable future.

Summary

The latest trends witnessed in Alabama suggest the entire state’s economy is firing on all cylinders, and the housing market is no exception. Positive employment and wage growth, combined with affordable housing opportunities, have stimulated the Alabama real estate market more in 2019 than in years past. As a result, everyone participating in the industry has benefited: buyers, sellers and real estate investors. With positive momentum showing no signs of slowing down, there may be no better time to get into the Alabama real estate market than now.

Sources:

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https://www.zillow.com/al/home-values/
http://www.acre.culverhouse.ua.edu/research/reports/al-residential-research
http://www.acre.culverhouse.ua.edu/markets/statewide?graph=monthsofsupply
https://docs.google.com/spreadsheets/d/1S2iHQefEw5s-mTnvISa360-ACftVwOUkP7g4yDvkmMA/pubhtml?gid=1
http://d1ambw9zjiu0uw.cloudfront.net/custom_reports2/21.pdf?1564002189
https://www.bls.gov/eag/eag.al.htm