Birmingham, Alabama
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There’s Plenty of Charm Left in the South’s “Magic City”
By Carole VanSickle Ellis
If you were hoping the much-hyped housing “cooldown” would make things more affordable in southeastern cities like Birmingham, Alabama, then it might be time to change your wait-and-see strategy for a faster-paced approach. In the southern “Magic City,” which boasts the largest metropolitan area in Alabama and claims a history of economic growth of nearly 4,000% in its first four decades of existence, the housing market is hotter than ever.
“We are seeing a surge in buyers trying to outpace interest rates because their buying power will shrink over the next few months,” observed Richard Grimes, CEO and president of RealtySouth, in a Bham Now-hosted panel in late May.
He added, “There is no mechanism in our market to create 1,000 more homes, so supply is still going to be short.” Co-panelist Stuart Norton, associate director for the Alabama Center for Real Estate (ACRE) at the University of Alabama, predicted that upward pressure on home prices might diminish over the coming months while the rate of home sales slowed, but he did not expect prices to fall during the “cooling” period.
Birmingham’s biggest real estate-related bottleneck is, as Grimes implied, a lack of new construction in the area. “The 211 new homes sold [during March 2022] represented 13% of all residential sales in the Birmingham area,” noted Marco Santarelli, CEO of Norada Real Estate Investments. The pickings are particularly slim when it comes to affordable housing, and the local housing authority recently reported that building material cost increases are going to delay projects intended to cater to senior residents and families.
The authority demolished 29 residential buildings last year but has found itself unable to replace the demolished housing, thus displacing families and other residents and creating more strain on local residential inventory.
“We continue to see historically low inventory [and] buyers are bidding more aggressively than they were in 2021,” said Lucy Parker, a local realtor. “It is rare to find a house that has been on the market for more than a few days,” she added, noting the out-of-town buyers are also keeping the housing supply tight. With just under half (49%) of all single-family residences in the city registered as rental properties, many of those buyers are likely investors hoping to leverage the area’s skyrocketing rental rates and relative affordability compared to the rest of the country.
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According to a recent report from RealEstateWitch, rates are currently rising four times faster than median income in the area for a year-over-year increase of 13%. In fact, in Birmingham it is currently cheaper to buy a home than rent one. Nevertheless, home flipping returns in Birmingham, as in many other areas of the country, have been falling since 2020. According to a Q1 2022 report from ATTOM Data Solutions, although home-flipping volumes skyrocketed in 2021 to higher than had been seen since 2006, profits sank in Birmingham as well as nationally. In Birmingham, fix-and-flip returns fell by seven percentage points between 2020 and 2021 (the most recent annual data available).
The “Comeback Market” Comes Back (Again)
When Birmingham was founded in 1871, the area was ripe for economic expansion in the wake of the Civil War. Over the first 40 years of its existence, Birmingham earned its “Magic City” nickname thanks to 4,000% economic expansion thanks to a large steel industry presence in the area. While this industry has declined in prominence overall since the late 1800s and early 1900s, the city still supports steelmakers like U.S. Steel, CMC Steel, and Nucor, and U.S. Steel completed the construction and start-up process for an advanced electric arc furnace (EAF) in 2020, adding 1.6 million tons of steelmaking capability to the market. This is increasingly important for markets like Birmingham with large steel industry presence because the ongoing Ukraine-Russia conflict is limiting access to foreign iron-ore products.
Although Alabama as a state does not typically call to mind words like “innovation,” “biotechnology hub,” or “financial center,” the truth is that Birmingham boasts strong representation in all of these sectors and many more. During the COVID-19 pandemic, much of the informal work to bring startups, biotechnology employers, and international industry presence to the city was formalized under state governor Kay Ivey’s Alabama Innovation Commission. The commission makes policy recommendations related to attracting job seekers, building an “innovation economy,” supporting entrepreneurs and startup communities, and improving Alabama’s global reputation. Birmingham is ahead of the curve in this effort and benefiting from the head start.
From July 7-17, 2022, the city will host the World Games 2022, an 11-day international multi-sport event organized with the support of the International Olympic Committee (IOC). This event alone is expected to bring in more than 3,600 athletes from at least 100 different countries and should lead to significant appreciation in areas in close proximity to the World Games venues, including Avondale Park, Sloss Furnaces, Legion Field, and Central Downtown. Birmingham mayor Randall Woodfin noted that the city’s role as host of the games has been a deliberately thought-out process, saying, “We know about the historical perceptions of Birmingham, and…we are not going to forget our past, but we have evolved…. When a lot of people talk about Birmingham, the images that come to mind are [black-and-white photos from the 1960s], but that is not who we are today.” Woodfin has said on multiple occasions that The World Games 2022 will send a positive “ripple” of information about Birmingham outward around the world.
Although The World Games certainly have the potential to be a defining moment for the city, Birmingham already had begun to refurbish its image when it was named host city for the event. The Birmingham-Shuttlesworth International Airport has undergone more than $7 million in improvements; the local transit authority has designed and upgraded miles of heavy and light rail along with the local bus systems, and the city’s City Walk BHAM has recreational space, water features, market space, wine gardens, dog parks, green spaces, and public art spread out across 31 acres. Proximal neighborhoods experienced the benefits of this ongoing local improvement, posting appreciation of more than 50% between 2008 and 2017 and filling commercial vacancies almost completely so that occupancy leapt from 25% in 2008 to 95% in 2017.
In 2021, the Wall Street Journal named Birmingham on its Emerging Housing Markets Index — albeit relatively far down since the market has been a known one for quite some time now — and noted it is among “the top metro areas for home buyers seeking an appreciating housing market and appealing lifestyle amenities.”
“A City for Builders”
In early 2022, Woodfin observed of the city that it “is and always has been a city for builders, from steel mills to start-ups.” The city certainly appears poised for another round of growth thanks to 1.5% job growth, a nearly 4% increase in hourly wages year-over-year according to the Birmingham Business Alliance, and a cost of living stubbornly hovering a few points below the national average.
Birmingham’s Department of Innovation and Economic Opportunity (IEO) is currently engaged in an ongoing solicitation of proposals to grant public funds “to any individual, firm, corporation, or other business entity, public or private, for the purpose of promoting economic development for the city,” and maintains a BOLD (Building Opportunities for Lasting Development) fund to partner with entities to build up Birmingham.
“In 2018, we began the BOLD process as a method of more transparently allocating city funding to partner organizations in the community and economic development,” reported Cornell Wesley, IEO director, in July 2021. He noted that the initiative would make $1 million available in 2022 for economic development and had established nine partnerships in fiscal year 2021 for an economic impact of $903,000 in the initial year.
The 10 partnerships formed through the initiative in 2019 and 2020 have had a $3.5 million and $4.4 million impact, respectively. BOLD is one of four marquee initiatives supported by IEO along with a variety of small-business resources.
“One of the benefits of the Birmingham, Alabama, real estate market is that it is incredibly stable and steady,” said Santarelli. “It is seeing faster-than-average appreciation [at present], but it has never been subject to the wild swings that have hit the coasts or other ‘hot’ markets.”
As long as Birmingham continues to focus on growth and nurturing its multifaceted economy, the market should remain an attractive one for real estate investors.
SIDEBAR 1
Birmingham by the Numbers
5 — Most popular markets for investors, (2022), PolicyGenius
2 — Best U.S. Cities for Job-Seekers, (2021), MoneyGeek
7 — Top Cities Real Estate Investors Should Target, (2021), Business Insider
10 — Best Cities for New College Grads, (2020, 2021), SmartAsset
550 — Number of technology companies in the Birmingham metro area
112 — Number of startups currently located in Birmingham’s “Innovation Depot,” the largest startup complex in the southeastern United States
12 — Largest banking centers in the nation
18,000 — Number of skilled automotive workers employed in Birmingham
1.1 Million — Population of the Birmingham-Hoover MSA
Fortune 500 and Fortune 1000 Companies Headquartered in Birmingham
#434 — Regions Financial Corporation
#588 — Vulcan Materials Company
#596 — Encompass Health
SIDEBAR 2
A Note on Birmingham’s Surrounding Markets
Although the pandemic certainly played a substantial role in the acceleration of rental rates and property values in Birmingham, homeowners today are realizing what real estate investors have known for years: Birmingham is a pretty great place to be. The city has been a quiet center of turnkey rental activity for years, and that activity has spread outward as more and more people move into the area. In fact, in 2022, U.S. News & World Report ranked Huntsville, Alabama, which is just about 90 minutes north of Birmingham, the best place to live in the country, and the two cities have a mutually beneficial dynamic.
Zelda Friedman, president of the Huntsville Area Association of Realtors, observed in 2021, “There is a tremendous amount of industry coming to the area. It is simply job growth, and we expect this momentum to continue for the next few years.” Huntsville is known as the “Rocket City” due to the presence of the U.S. Space and Rocket Center and many other high-tech and aerospace companies.
Montgomery, Alabama, most famously known as the “birthplace” of the American Civil Rights Movement and also located about 90 minutes from Birmingham, sends its fair share of economic benefit northward to The Magic City. Thanks to a series of locks and dams along the Alabama River, proximity to Montgomery benefits Alabama by placing it in a strong position on the supply chain leading into the U.S. Montgomery, unlike Huntsville, boasts a lower cost of living than Birmingham, making it an attractive location for part- or full-time remote workers seeking proximity to Birmingham’s resources but not wishing to live in the metro area.
“I like [Alabama] because prices do not fluctuate too much, unlike other parts of the country,” said John Morey, manager of JP Real Estate Group, LLC. Morey owns rental properties in the Huntsville and Decatur areas of the state. “Alabama is more of a cash-flow state, and I love cash flow. It is a great place to have rentals.”
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