In this article, we will focus on a few significant trends crucial for anyone interested in Alabama housing market predictions for 2025 and 2026. These include:
- An anticipated increase in housing supply, with home sales projected to catch up gradually.
- The stability in home values, with minimal fluctuations expected on a year-to-year basis.
- Alabama’s continuing affordability places it amongst the country’s top 10 rapidly growing states.
- Thanks to decreasing building materials cost, the forecast across Alabama and the broader U.S. is a rise in construction and reconstruction projects.
This comprehensive deep-dive seeks to offer Alabama housing market predictions for the state as a whole and Birmingham for the years 2023 and 2024. Our insights are based on a thorough analysis and synthesis of data from authoritative sources such as CoreLogic, the NAR, the US Census Bureau, and the Bureau of Economic Analysis (BEA), among others.
However, keep in mind that these are mere predictions. The future, as always, is uncertain, and we can only project possibilities based on current trends and industry patterns. With that said, let’s delve into it!
Alabama Housing Market Trends & Factors Influencing Growth
Since January 2023, the Alabama housing market has seen a slowdown in price growth. However, things are looking up, with mortgage rates stabilizing and buyers re-entering the market. In this section, we will look at demographic and economic trends affecting the Alabama housing market in 2023 and 2024 to better help you understand the predictions in the sections to come.
Population growth and migration patterns
Recent demographic data reveal that Alabama has experienced its fastest population growth in over a decade. A few notable trends have emerged, shaping the state’s housing market:
- From 2021 to 2022, Alabama’s population increased by 28,609 people, or 0.5%, making it the state with the 9th highest rate of domestic net migration during this period.
Image Source: National Association of Realtors
- The Public Research Council of Alabama reported that over half of Alabama counties experienced a population increase between July 1, 2021, and July 1, 2022.
- The Huntsville and Baldwin County regions have seen the most significant growth, with further growth areas in the Wiregrass and Northeast Alabama.
However, traditional urban centers like Jefferson, Montgomery, and Mobile have witnessed population declines.
Huntsville currently has the hottest real estate market in Alabama. Private and public defense investments, job creation by manufacturing companies such as Mazda-Toyota and Polaris, and strategic land annexation have fueled Huntsville’s growth.
Despite Huntsville’s expansion, the Birmingham-Hoover metropolitan area remains the largest in Alabama. The six counties within this metro area have seen varying growth rates, with Shelby and St. Clair counties witnessing the highest population increases of 2.8% and 2.5%, respectively. In 2022, Alabama’s estimated population stood at 5,074,296, with an area of 131,175 km2, resulting in a density of 38.86/km2.
The population surge has directly impacted the housing market, particularly in the rental sector. An increased demand for rental properties in Alabama has driven up rental prices, benefiting property investors.
Employment and economic indicators
Alabama’s economy has returned robustly from the COVID-19 downturn, with a 4.8% ($9.5 billion) increase in economic output in 2021, following a 3.2% ($6.5 billion) contraction in 2020. Its prime location makes it a strategic business hub, attracting domestic and international firms and contributing to housing demand.
Significant economic insights for investors include:
- Alabama has seen an influx of foreign direct investment from countries like Germany, Canada, and China, with exports of $20.9 billion in 2021, marking a 22% rise from 2020.
- A projected 1.0% economic and 0.4% employment growth in 2023 indicates sustained economic expansion.
- The state added 7,900 jobs in April alone, contributing to the overall 40,800 jobs increase between April 2022 and April 2023. A drop in unemployment from 2.5% to 2.2% underscores this favorable employment trend.
- Despite per capita income being below the national and Southeast regional averages, investments from giants like Airbus, Hyundai, and Toyota create job opportunities and stimulate the housing market.
Major projects that are expected to boost job creation further include:
- Novelis’ $2.5 billion aluminum mill in Bay Minette promises 1,000 jobs.
- First Solar Inc.’s $1.1 billion factory in Lawrence County is set to employ over 700 workers.
Given Alabama’s generally low cost of living, recent economic successes are anticipated to drive population growth and further enhance demand in the housing market.
Real estate development and construction trends
In May 2023, Alabama experienced a decline in home sales, with 6,453 sales recorded during the month. This represents a decrease of 2,430 sales compared to May 2022 and marks the lowest May sales volume in five years. Despite this slowdown, the state saw a surge in home inventory as new listings increased by 35.7% compared to the previous year, and housing supply grew by 58.8%.
Although sales volume has decelerated, home values have remained steady. The median sales price has increased for the past four months, demonstrating the market’s resilience in maintaining stability and value appreciation amidst slowing sales and rising rates. May 2023’s median sales price was $227,876, up from February’s 12-month low of $200,650 and the highest since October 2022.
In the broader context, inflation has increased the cost of building and purchasing property nationwide. Between Q3 2022 and Q4 2023, housing starts, building permits, and home sales declined while mortgage rates rose.
On a positive note, the prices of some building materials, such as structural steel, lumber, plywood, and rebar, have decreased. Alabama experienced the most significant decrease in reconstruction costs of any state in the US between November 2022 and February 2023.
CoreLogic found that Alabama’s reconstruction costs fell by 2.9% between November 2022 and February 2023, boosting home builders. However, labor costs remain high, as do the costs of other building materials like nylon loop, door slab, and clay bricks.
Government policies and regulations affecting real estate
The new legislative efforts in Alabama under ‘The Game Plan’ initiative are expected to have several implications for the state’s housing market. Constituting four distinct bills, ‘The Game Plan’ is set to affect the state in various ways.
- The Enhancing Alabama’s Economic Progress Act provides grants and tax credits to groups that contribute to local economic development. These could include developers of new housing projects and businesses that provide housing-related services. The bill also includes the Sweet Home Alabama Tourism Investment Act, which offers tax rebates to qualifying tourism companies.
- The Site Evaluation and Economic Development Strategy Act. The SEEDs program was created to disburse grants for economic development sites in specific areas of the state. These could include areas with a housing shortage or areas being targeted for economic development.
- The Innovation and Small Business Act provides grants and tax credits to qualifying small businesses, including technology accelerator projects.
- The Enhancing Transparency Act requires the Department of Commerce to publish information about organizations receiving grants.
These new policies and regulations are intended to help Alabama attract new businesses and create jobs. This could lead to an increase in demand for housing, which could, in turn, drive up housing prices. However, the policies could also lead to an increase in housing supply, which could help to keep housing prices in check.
It is still too early to say what these policies will do to the Alabama housing market in the long term. However, they could significantly impact housing availability and affordability in the state.
Birmingham Housing Market Predictions
In this section, we will examine the current Alabama housing market predictions and trends in Birmingham’s housing market specifically. We’ll also highlight some forecasts for Birmingham’s future and discuss some of the best cities to invest in the Birmingham, Alabama, real estate market in 2023 and 2024.
Overview of the Birmingham metro area
Located in North Central Alabama, the Birmingham metropolitan area, commonly called Greater Birmingham, has a population of 1,350,646 and is the 42nd largest population subregion in the nation. Importantly, it represents approximately one-fourth of Alabama’s total population.
Birmingham distinguishes itself through its world-class medical research facilities, creating significant employment opportunities. The University of Alabama at Birmingham (UAB) is Alabama’s largest employer, boasting a robust workforce of over 20,000.
Additionally, Birmingham has garnered attention from the millennial demographic (25-34 years old) for its vibrant arts and food scenes, making it the seventh-ranked city among the 150 largest US metro areas for a percentage increase in millennial residents. Notably, it also ranks highly with Gen Z buyers, who create over 20% of mortgage requests, as corroborated by LendingTree data.
The economy in the Greater Birmingham area is diverse, ranging from service industries, such as banking and finance, to health-related technological research and heavy manufacturing industries. The metropolis houses the world headquarters for Regions Financial and Books-A-Million, the second-largest book retailer in the United States.
According to Redfin data, Birmingham’s housing market trends toward competition with a score of 54. As shown in Redfin’s June 2023 data, there is evidence of some volatility: days on the market increased by an average of 9. Simultaneously, sales decreased 24.8% compared to the previous year, and home prices declined 7.6% year over year.
However, these figures shouldn’t obscure potential investment opportunities. Birmingham remains strongly positioned as one of the premier investment locations for vacation rentals. In 2021 alone, the Greater Birmingham area welcomed roughly 3.6 million overnight visitors, contributing to the considerable tourist revenue of approximately $2.2 billion.
Several high-traffic attractions, including the Birmingham Civil Rights Institute, the Birmingham Museum of Art, and the Barber Vintage Motorsports Museum, contribute to this steady inflow. For culinary enthusiasts, the city, fondly known as the “Dinner Table of the South,” offers a diverse range of chef-owned restaurants.
Birmingham Real Estate Market Forecast
1. Property prices
Birmingham home prices will rise, driven by an influx of new residents
Alabama has become an attractive destination for new residents due to low property taxes (averaging $632 in 2020) and a generally low cost of living. Chelsea, located 20 miles southeast of Birmingham, has experienced a record-breaking population boom, making it the sixth fastest-growing city in Alabama, with a population of 16,193 in 2022, according to U.S. Census Bureau data.
Despite currently underperforming the overall U.S. market, the Birmingham-Hoover metro area’s housing prices are forecast to outperform the national market over the next twelve months. Housing IQ, a real estate analytics platform, predicts an estimated 9.3% increase in house prices due to strong local economic conditions. The platform ranks the Birmingham metro area real estate market 283 among 402 US metro housing markets.
Low inventory persists
The Birmingham housing market is experiencing persistently low inventory numbers. According to an analysis by FRED using Realtor.com data, the active listing count in the Birmingham area stood at just 2,390 in June 2023. This, however, marked an upward trend from May 2023, when the listings were at 2,286.
Realtor’s housing shortage tracker sheds more light on this low inventory trend. In the Birmingham-Hoover metro area, permits were issued for 4,270 units in the first quarter of 2023, 2,824 of which were single-family home permits. Job growth in the area during the same period was 5,600, indicating stronger demand versus supply in the housing market.
Housing inventory in Birmingham is expected to continue lagging behind demand heading into 2024. This is due to a number of factors, including the strong demand for housing in Birmingham, the limited supply of land, and the time it takes to build new homes. Even though sales are declining, prices are not expected to fall significantly because there are still more buyers than sellers in the market.
Birmingham will continue to attract out-of-state buyers
Birmingham, Alabama, has quickly become a hotspot for out-of-state buyers. According to information from a Stacker study, this trend looks to continue into 2023 and 2024.
Using demand data from Realtor.com, the study revealed that eight out of the top ten cities where people search for homes in Birmingham are from out of state. Chicago, the number one city on that list, sees over 30% of prospective homeowners keen on Birmingham.
The Birmingham, Alabama, real estate market is expected to remain competitive in 2023 and 2024, with out-of-state buyers continuing to drive demand. Owing to its unique affordability and growing population, this area will continue to be one of the best places to invest in 2023 and 2024.
2. Rental rates
Drop in year-to-year rent prices, but rents are increasing month-to-month
Recent reports from both Rent.com and Zillow provide some insight into the current state of the rental market in Birmingham.
According to Rent.com, Birmingham’s median rent is $1,618 per month. This is approximately a 6% drop from what renters paid the previous year.
On the other hand, Zillow estimates that the median rent in Birmingham is $1,128, which is $72 less than in June 2022. Despite being $972 lower than the national median, rents have increased slightly by $8 from June to July.
The trend that emerges from these figures indicates a decrease in year-on-year rents but a consistent increase on a month-to-month basis. We predict a continued marginal increase in rent prices through 2023 and 2024.
Median household income is on the rise as more jobs come to Birmingham
Berkadia, a commercial real estate services company, predicts that by the end of 2023, employers in Birmingham will create 4,300 new jobs, resulting in a 0.8% expansion. Among these additions is establishing a $1.1 billion J.M. Smucker Co. manufacturing and distribution center, which will employ 750 workers when operational in 2025. The leisure and hospitality industries are also predicted to boost the local economy, having recorded almost $20 billion in tourism expenditures in fiscal year 2021.
In line with these economic factors, Berkadia also predicts a median household income of $67,354 for Birmingham in 2023, a notable 3.7% increase year over year.
Considering the low housing inventory and high mortgage rates, it’s reasonable to anticipate an increase in demand for single-family rental properties within the Birmingham metro area.
A few Birmingham neighborhoods to consider
1. Pell City
Pell City is a growing city located 30 miles east of Birmingham, Alabama, in St. Clair County, and 109 miles west of Atlanta, Georgia. As of 2021, its population was 13,248. The city benefits from its proximity to Birmingham while still offering a small-town atmosphere. Established by railroad investors in 1890, this thriving community has evolved into a diverse economic hub.
Several prominent manufacturing companies, including Eismann Automotive, WKW North America, EMJ Metals, Andritz, and Douglas Manufacturing, call Pell City home. These businesses create employment opportunities for the city’s residents and contribute to its economic growth.
The groundbreaking for Pell City’s newest shopping center, Pell City Square, took place in September 2022. Spanning 147,000 square feet, it represents St. Clair County’s largest retail investment development since 2005. Upon completion, Pell City Square is expected to further bolster the city’s appeal to new residents and businesses alike.
Considering its strategic location, thriving local economy, growing infrastructure, and access to the broader Birmingham metropolitan area, Pell City is a promising destination for investment in 2023 and 2024.
2. Calera
Calera is a city in southern Shelby County, Alabama, United States. It is located along U.S. Route 31 and Interstate 65 and is home to several national companies, including Wheelworx, Lhoist, and Sysco. The recent relocation of Sunbelt Paper and Packaging Company to the brand-new Calera Commerce Center is a testament to the city’s growing appeal.
The city’s population increased by 8.5% between 2020 and 2022, and the median household income is about $70,000. Calera also boasts a high quality of life with excellent elementary and secondary schools, Timberline Golf Course, two wineries, the Heart of Dixie Railroad Museum, and post-secondary education and training through Jefferson State Community College and the University of Montevallo.
The city is well-positioned to continue growing in the coming years, making it a wise investment for those looking to enter the Birmingham real estate market.
3. Chelsea
Tucked away in Shelby County, Chelsea is a charming city that perfectly balances rural tranquility and easy access to urban amenities. With a population of 14,982 as of the 2020 census, Chelsea consistently ranks as one of the fastest-growing cities in Alabama. Located approximately 10 miles southeast of Birmingham on the US Hwy 280 corridor, Chelsea enjoys being part of the larger Birmingham-Hoover Metropolitan Statistical Area without sacrificing its small-town feel.
Chelsea is known for its excellent schools and tight-knit community, earning the nickname “It’s All About Family.” Residents can enjoy various activities and attractions near their homes, including award-winning wineries, beautiful gardens, state parks, and outdoor amphitheaters.
Conclusion
As a beginner investor, Alabama presents an attractive opportunity due to its affordable housing market and low cost of living. Understanding the current trends and forecasts in the Alabama housing market allows you to make informed decisions when investing in the area.
We hope this article has provided valuable insights into Alabama housing market predictions for 2023 and 2024. As a next step, consider becoming a member of RealWealth to connect with our experienced investment counselors, who are ready to answer any questions you might have about investing in Alabama. They can also connect you with property teams in the Alabama area selling fully renovated single family homes at affordable prices.
