Alabama Real Estate Market Trends & Analysis

The Alabama real estate market may be summed up in two words: relatively affordable. Despite median home values increasing for the better part of a decade, low interest rates and improvements to the state’s median family income have made it easier for more people to actively participate in the housing market. Additionally, unemployment has dropped since last year, and confidence is starting to return to the market in the wake of the pandemic.

However, it is worth noting that while more people are looking to participate in the market, insufficient inventory levels have kept many prospective buyers on the sidelines. Today's lack of listings, in addition to lower interest rates and more savings in bank accounts, has simultaneously increased competition and respective home values. In response, local real estate investors have started looking away from shrinking profit margins on rehabs and towards long-term exit strategies like rental properties.

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: $172,932

• Median Sales Price: $208,288 (+11.3% year over year)

• Total Home Sales: 22,238 (+24.0% year over year)

• 1-Year Appreciation Rate: +13.0%

• Average Days On Market: 53 (-38.6% year over year)

• Total Homes Listed For Sale: 9,633 (-43.8% year over year)

• Months Of Supply: 1.3

• Median Rent Price: $1,023

• Price-To-Rent Ratio: 13.72

• Unemployment Rate: 3.3% (latest estimate by the Bureau Of Labor Statistics)

• Population: 4,903,185 (latest estimate by the U.S. Census Bureau)

• Median Household Income: $50,536 (latest estimate by the U.S. Census Bureau)

Alabama Median Home Prices

Like the rest of the country, the Alabama real estate market has seen its prices rise almost exponentially for close to 10 years. For most of the last decade, confidence in the housing sector and an expanding economy drove prices higher regularly. Since 2012, the median home value in Alabama has increased as much as 47.8%. However, the real story has more to do with what has transpired in the last year and a half. Since the introduction of the Coronavirus, the state's median home value increased approximately 13.0%.

Increases in the last year are primarily the result of indicators created in the wake of COVID-19. In particular, the housing market has a healthy level of demand. More people are looking to buy because of historically low interest rates, increased savings from more than a year of staying home, and rising prices. All things considered, more people are ready and willing to buy in Alabama than in recent history, which has drastically increased demand. That said, demand has outpaced supply for way too long. With a mere 1.3 months of available inventory, Alabama is far from a balanced market, with indicators favoring sellers. As a result, prices have tested new highs each month in 2021.

More importantly, price increases will continue for the rest of the year and most likely for at least two more years. As long as inventory remains low and demand remains high, prices will keep increasing. Fortunately, homebuilders are back to work and are starting to address the issue, but relief is far away. Homes are being built, but the vast majority of them are years out. Till then, it's safe to assume values will keep rising.

To be 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

Alabama’s home prices impact the entire housing sector, and the rental market is no exception. The latest increase in home prices has impacted the rental market in a significant way. If for nothing else, higher home values and a lack of listings are preventing a large population of prospective buyers from actually participating in the market. In other words, there’s a large contingent of people that want to buy but can’t, which lends itself to another issue: the same supply and demand crisis facing would-be buyers is impacting renters. Since more people are priced out of the buying market, we see more renters than average competing over fewer available properties. As a result, landlords have found themselves in a position of power in Alabama and increased their asking rates.

According to the latest data released by Apartment List, the median rent in Alabama has increased 12.1% in the last year and now sits around $1,023. The latest increase in rents is almost in line with home values, albeit slightly lower. It may only be a matter of time until rents actually catch up to their value counterparts. The latest increase has resulted in the following prices for individual unit sizes:

• Studio: $783

• 1 Bedroom: $795

• 2 Bedroom: $977

• 3 Bedroom: $1,186

• 4 Bedroom: $1,420

Comparatively, the national average rent price is $1,219, or 19.1% higher than Alabama's. The difference is noticeable, and appreciation forecasts suggest the discrepancy will only grow for the foreseeable future.

Alabama Foreclosure Trends & Statistics

According to Attom Data Solutions’ Midyear 2021 U.S. Foreclosure Market Report, a total of 65,082 U.S. properties received a foreclosure filing (default notices, scheduled auctions, or bank repossessions) in the first six months of the year. “That figure is down 61 percent from the same time period a year ago and down 78 percent from the same time period two years ago,” according to the report.

To be clear, foreclosures are primarily down because of government safety nets. Forbearance programs and government aid prevented many landlords from following through with evictions, and lenders weren't allowed to initiate foreclosure filings. Foreclosures in Alabama are no exception, as filings are down about 52.6% over the first six months of 2021 from the same point in the previous year. In all, Alabama saw a total of 1,143 properties file for foreclosure from January to June. At that rate, only 0.05% of the state's housing units are considered distressed. At that rate, foreclosures in Alabama are pretty much in line with national averages.

However, Alabama real estate investors need to realize that the decrease in foreclosures is expected to be short-lived. As government assistance runs out, distressed homeowners will be forced to come current on their mortgages, leaving many no other option than to file for foreclosure. As a result, now is as good of a time as any to start lining up financing. Over the next year, foreclosures are expected to increase, and investors ready to help distressed homeowners will have an advantage.

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. Unlike states like California and New York, where profit margins are much smaller, Alabama real estate investors find themselves with a lower financial barrier to entry.

Despite the state's relative affordability, prices are still higher than they have ever been. Rehabbers can still find deals to flip, but the higher acquisition costs are eating into profit margins. That's not to say there isn't any room to make profits; there is. All across the country, in fact, home sellers are making nice profits.

According to Attom Data Solutions' second-quarter 2021 U.S. Home Sales Report, "the typical single-family home and condo sale across the United States during the second quarter of 2021 generated a profit of $94,500. That was up from $90,000 in the first quarter of 2021 and $60,572 in the second quarter of 2020."

Still, the new market created in the wake of the Coronavirus has forced many real estate investors in Alabama to reevaluate their exit strategies. Home prices are becoming more prohibitive to rehabbers with each passing month. That's why, in addition to rehabbing, many investors are looking for long-term investments like rental properties.

Thanks to historically low interest rates, investors may help offset today's high acquisition costs. As recently as July, the average commitment rate on a 30-year fixed-rate loan was 2.87%. While up slightly year to date, today's rate is historically low and represents a great opportunity for investors to increase cash flow and offset higher acquisition prices simultaneously. Consequently, the less money rental property owners have to pay towards their mortgage each month, the more they can pocket from incoming rent.

In addition to lower borrowing costs, Alabama's price-to-rent ratio is 13.72. At that level, it's more affordable to own real estate in Alabama than to rent it. More often than not, a 13.72 price-to-rent ratio would work against landlords, encouraging more people to own. However, the state's 1.3 months of inventory have kept many buyers on the sidelines. More people are forced to continue renting, effectively increasing rental demand. The latest increase in rental demand has allowed landlords to mitigate risk and increase asking prices accordingly.

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 was at this time last year; that, combined with an improving economy, more savings, and historically low interest rates should promote homeownership on a larger scale.

• 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. 2021 marks the ninth 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, and appreciation isn't as high as the national average.

• Inventory constraints will continue to increase median home values for the foreseeable future: Alabama has about 1.3 months of available inventory. However, a balanced market typically has about six months, which suggests Alabama has nowhere near as many listings as it would hope. 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
https://www.attomdata.com/news/most-recent/attom-mid-year-2021-u-s-foreclosure-market-report/
https://www.apartmentlist.com/research/category/data-rent-estimates
https://d1ambw9zjiu0uw.cloudfront.net/market_quarterly/21.pdf?1627400640