Alabama Housing Market Update Report – Fall 2022
What is the Alabama Housing Market Like?
The Alabama housing market remains relatively affordable despite the Alabama home price increases that have been brought in by the high demand for housing coupled with historically low interest rates in the wake of the COVID-19 pandemic. However, the housing market in Alabama has started to show signs of slowing down as prospective buyers face the double headwinds of high property prices and skyrocketing mortgage rates.
According to data collected in September 2022, the latest available at the time of writing, the Alabama median home sale price had climbed to reach $281,500, accusing a 9.2% in the year-over-year comparison. The market remains competitive, with 27% of homes selling above the asking sale price.
Nevertheless, some signs point toward an impending Alabama housing market correction. The sale volume has declined by 14.8% compared to the previous year, with 5,149 real estate transactions in September 2022. Properties also take longer to sell, with a median number of days on the market reaching 35, although it is lower than 44 for the year before.
The available inventory is increasing, which will be music to the ear of house hunters, who have been struggling with a white-hot housing market in the past two years. There were 18,124 houses for sale in Alabama in September 2022, with 5,457 of them being newly listed homes. Both posts increased by 9.4% and 9.5%, respectively, in the year-over-year comparison. However, the Alabama housing market remains unapologetically a sellers’ market, with only two months of housing supply, slightly higher than one the previous year but still a far cry away from the five to six months needed to reach a balanced market.
How does the Alabama Housing Market Compare to the National Housing Market?
The Alabama housing market is mirroring many of the trends observed in the real estate market at the national level. After standing near historic lows for several years, interest rates have increased sharply following the aggressive monetary policy initiated by the Federal Reserve Bank in March 2022 in order to put a stop to the skyrocketing inflation, which stood at a forty-year high. By November 2022, the Fed had proceeded to four consecutive 75 bps interest rate increases, sending mortgage rates to hover around 7% at levels unseen since April 2008.
Between the increased cost of borrowing money and sky-high property prices fueled by the chronic lack of inventory, an issue preceding but exacerbated by the COVID-19 pandemic, prospective homebuyers have found themselves pushed to the sidelines. In consequence, the number of home sales has decreased nationwide, including in Alabama. “Home prices have outpaced income growth over the past few years, leading to record levels of overvaluation across the country,” said Cris deRitis, Deputy Chief Economist at Moody’s Analytics. “With rising mortgage rates pricing millions of would-be buyers out of the market, home prices are expected to fall nationally by 5 to 10%.”
Although Alabama home prices remain relatively affordable compared to the national level, several housing markets have been overvalued due to the discrepancies between the housing price increases and the area’s income levels. Therefore, experts expect a market correction leading to decreasing or flatlining Alabama housing prices.
Alabama Metro Areas with the Hottest Housing Markets
Alabama features a diverse environment mixing urban centers and rural areas, with a culture firmly anchored in its agricultural past. Alabama is the 30th largest by area and the 24th-most populous of the U.S. states. Here are the hottest housing markets in Alabama in terms of volume.
Huntsville is the most populous city in Alabama, with a population of 215,006. The city’s main economic influence is derived from aerospace and military technology, with some of the largest research parks in the United States calling Huntsville home. The Huntsville housing market is somewhat competitive, with listed properties receiving two offers on average. Houses typically sell after a median number of days on the market of 32. 33.1% of homes sell above the asking price, and the median sale price reached $325,000 in September 2022, marking a 16.1% increase compared to the previous year.
Birmingham has a population of 197,575, making it Alabama's third-most populous city after Huntsville and Montgomery, but the metropolitan area surrounding the town is the largest in the state. The Birmingham housing market is somewhat competitive, and homes for sale in this city receive two offers per listing on average. 33.2% of homes sold above the asking price in September 2022, with the median sale price climbing to $231,000, which makes it 15.5% higher than the year before.
Montgomery is the state capital and the second most populous city in Alabama, with a population of 200,603 residents. In addition to housing many Alabama government agencies, Montgomery has a large military presence. The median selling price reached $167,427 in October 2022, marking a 2.5% increase compared to the year prior. 25% of homes sold above the asking price, and houses sold on average after 53 days on the market.
Higher Mortgage Rates Could Slow Down the Price Growth in Alabama
As of November 20222, mortgage rates are hovering around 7%, twice as high as they were at the same time last year and higher than they have been since 2008. Over the course of the life of the loan, today’s borrowers can expect to pay thousands of dollars more in interest than their predecessors for a similar home. This difference significantly affects the buying power of prospective buyers, who must also contend with property values that stand at their highest level and are still growing in many areas. In addition, households’ budget has been impacted by inflation, which stands at its highest level in decades, and the perspective of a recession looming on the horizon.
The median Alabama home prices have cooled down since their peak in June 2022 but are still increasing in their year-over-year comparison. Nevertheless, local salaries are not following the same ascending trends, and today’s Alabama housing market is expected to correct in the coming months. One of the reasons behind the lower Alabama house prices is seasonal – as, in many other places, home prices tend to be lower in the fall and winter – but there is no doubt that higher interest rates will affect Alabama home prices.
Key Market Stats for the Alabama Housing Market
According to September 2022 data, some of the key market stats for the Nebraska housing market appear as follows:
· Median home price: $281,500 – a 9.2% Y.o.Y. increase.
· Home sales: 5,149 – 14.8% less than a year ago.
· Months supply of inventory: 2 – up from 1 in September 2021.
· Mortgage rates as of November 10th ,2022: 7.08%
Historic Price Changes and Affordability
The Alabama housing market has been following an ascending trend since the end of the Great Recession, but Alabama housing prices have increased significantly faster in the past three years as interest rates stood near historic lows. The median home price has increased from $206,400 in September 2019 to $281,500 in September 2022, with a peak of $290,000 in July 2022, representing a 36.38% increase in 36 months.
Alabama home prices remain relatively affordable compared to the national level despite this increase and continue to attract new buyers and investors, who keep the demand high. However, local salaries are not increasing nearly as fast as the Alabama housing market. Experts expect a significant slowdown or a likely correction in the most overvalued metropolitan areas.
- Alabama home prices are still increasing, although at a much slower rate than in previous months. Some cities are still seeing growth in the double digits.
- The Alabama housing market remains more affordable than the national average despite significantly higher home prices in recent years. Due to the low inventory and strong demand, we are still in a sellers’ market.
- The demand for housing and, in consequence, Alabama home prices are likely to decline or flatline in the coming months due to the higher mortgage interest rates, which significantly affect prospective buyers’ budgets.