The Montgomery, AL Real Estate Market: A Smart Investment in 2020?

Earlier this year, Motley Fool rated Montgomery, Alabama as one of the best markets for rental property investors to keep an eye on in 2020 due to the market’s high rental yields.

Montgomery is the state capital and is located alongside the Alabama River in south-central Alabama, roughly equidistant between the Gulf Coast city of Mobile to the south and Birmingham to the north. 

Industries such as agriculture, defense, manufacturing and education help keep job and population growth stable. The city was also a center of the Civil Rights Movement and is proud of the variety of government and nonprofit civic organizations that call Montgomery home.

Read on to learn more about how the Montgomery, AL real estate market might perform in 2020.

>>Explore Roofstock's Montgomery Investment Properties here.

 

Population Growth

Population growth in the Montgomery metropolitan area has declined by about 1.6% over the past decade, according to the most recent data from the U.S. Census Bureau, matching the rate of population change in Alabama’s other large cities of Birmingham and Mobile.

Key Population Stats:

  • Montgomery is home to nearly 206,000 people in the city and more than 373,000 residents in the metropolitan area.
  • Population in Montgomery declined by 0.3% last year but has been trending upward since 2016.
  • Montgomery is the 2nd-largest city in Alabama and is the 144th-largest metropolitan area in the U.S.
  • Median age in Montgomery County is 36.2 years with a gender ratio of 52.7% female vs. 47.3% male.
  • More than 600,000 people live within a 50-mile radius of Montgomery County, Alabama.

 

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Job Market

Under the brand “Made in Alabama," the state recently set a new record with $8.7 billion in new investment and created 17,000 new jobs. As the capital city of Alabama, Montgomery receives its fair share of economic stimulus and activity.

Key Employment Stats:

  • GDP of Montgomery is more than $16.2 billion, growing by nearly 2% over the past year and 8% over the last ten years.
  • Forbes also ranks Montgomery as one of the top 200 places for business and careers and the cost of doing business.
  • Montgomery has received more than $500 million in investments, thanks to the Made in Alabama initiative.
  • Job growth in Montgomery declined by 0.3% last year, according to Forbes.
  • Unemployment rate in Montgomery is 2.5% and has steadily declined over the past year, based on research from the U.S. Bureau of Labor Statistics.
  • Median family income in Montgomery is $59,700 as reported by the Montgomery Chamber of Commerce.
  • Income level in metropolitan Montgomery is 8.5% higher than the entire state and greater than median family incomes in the Birmingham and Mobile metro areas.
  • Cost of living in Montgomery is 8% below the national average and ranks lowest among the other Southeastern state capital cities, according to the Chamber.
  • Key industries in the greater Montgomery area include military and defense, advanced manufacturing, cyber & tech, medical, and automotive.
  • Largest employers in Montgomery County include Maxwell/Gunter Air Force Base, State of Alabama, Montgomery Public Schools, Baptist Health, ALFA Insurance Companies, City of Montgomery, and Wind Creek Casino & Hotel Wetumpka.
  • Industrial employers in Montgomery include Hyundai Motor Manufacturing Alabama, automobile parts manufacturer MOBIS Alabama, Koch Foods, GKN Aerospace, International Paper, and Kowa Pharmaceuticals America, Inc.
  • Alabama State University, Troy University, Auburn University at Montgomery, University of Alabama Birmingham, and Faulkner University are among the biggest public and private colleges and universities in Montgomery.
  • Nearly 86% of the residents of Montgomery are high school graduates or higher.
  • More than 32% of the people in Montgomery 25 years or older hold a bachelor’s or advanced degree.
  • Interstate highway I-65 connects Montgomery to Birmingham and Huntsville, and I-85 leads northeast to Atlanta.
  • Montgomery Regional Airport is served by American Airlines and Delta with direct flights to Atlanta, Charlotte, Dallas, and Washington, D.C.

 

Real Estate Market

In January of this year, Realtor.com rated Montgomery, Alabama as a buyer’s market with more active homes for sale than there are buyers. The metro area’s imbalance of supply and demand could represent a good opportunity for real estate investors as sellers become more motivated to do deals.

Key Market Stats:

  • Median listing price of a home in Montgomery is $143,250 while the median selling price is $111,200, according to Zillow (as of January 2020).
  • Square foot listing price of a home in Montgomery is $79, below the average price per square foot of $100 in the metropolitan area.
  • Home values in Montgomery have increased by 6.6% since December 2014 based on the Zillow Home Value Index.
  • Average days on market is 91.
  • During the listing period 9.5% of the houses for sale in Montgomery have a reduction in the asking price.
  • 28.2% of the homes in Montgomery have a negative equity vs. 8.2% U.S. average.
  • 1.6% of the homes in Montgomery have a delinquent mortgage vs. 1.1% nationally.
  • Prattville and Elmore are two cities near Montgomery with lower median home values.
  • Deatsville is a nearby city with a higher median home value than Montgomery.

 

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Strong Renters’ Market

In January, Motley Fool rated Birmingham and Montgomery as two of the cities in Alabama rental property investors should keep their eye on. The report noted Montgomery provides a higher rental yield of 9% or more, despite having slower wage growth and a slightly declining population.

Rental yield compares the median rental rate to the median home price. In markets such as Montgomery with higher median rent rates and a lower cost of housing, the percentage of rental income vs. market value will be higher. This presents a potentially solid investment for buyers focusing on cash flow over the long term.

Key Market Stats:

  • Median rent in Montgomery is $900 per month vs. $1,040 in the Montgomery metro area (as of January 2020), according to Zillow.
  • Rents in Montgomery have increased by nearly 2.3% over the past 12 months.
  • Average rents by bedroom size in Montgomery range from $749 for a 1-bedroom rental to $1,124 for a 3-bedroom and $1,547 for a 4-bedroom rental (as of February 2020).
  • Average household size in Montgomery is 2.45 people.
  • 57.5% of females in Montgomery and 52.2% of households without families rent where they live rather than own.
  • Pike Road, Blue Ridge, Prattville, and Millbrook are four of the best areas to live in metropolitan Montgomery, according to Niche.com
  • Best areas for families in Montgomery include Coosada, Deatsville, and Westumpka.
  • Most diverse parts of Montgomery are Elmore, Coosada, and Tallassee.

 

Historic Price Changes & Housing Affordability

Analyzing historical price changes and the affordability of housing are two metrics real estate investors use to help forecast the potential performance of rental property in a given market.

Every quarter, the FHA (Federal Housing Administration) releases an updated report of the historic price changes for housing markets throughout the United States. 

The most recently released FHA 2019 Q3 House Price Index for Montgomery shows that home prices (including purchases and refinance mortgages) have increased by 10.99% over the last five years. Over the last year home prices in Montgomery have risen by 4.69% and by 2.2% during the quarter ending September 2019.

Housing affordability compares the median cost of housing in a given market compared to the median income needed to purchase a home. 

The Alabama Housing Affordability (AHA) Index uses 100 as a baseline number to provide an index score by market. The further from 100 the AHA Index score is, the more affordable a housing market is, all other things being equal.

The Fourth Quarter 2019 Alabama Housing Affordability Index report from the Culverhouse College of Business at The University of Alabama gave Montgomery an AHA Index Score of 225.3, while Mobile received a score of 217.6 and Birmingham a score of 192.7. This means that, based on the AHA Index Score, buying a house in Montgomery is more affordable than Birmingham or Mobile.

 

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Quality of Life

Many people moving to Montgomery are amazed by the warm Southern hospitality, low cost of living and high quality of life. The job market is a balanced blend of production and service sectors. World-class culture, vibrant retail and dining, and state-of-the-art healthcare give Montgomery a small-town charm that’s hard to find in other cities of similar size.

Key Quality of Life Stats:

  • Montgomery receives high ratings for amenities and cost of living from AreaVibes.
  • U.S. News & World Report gives Montgomery County strong scores for population health, economy, and infrastructure.
  • Niche.com ranks Montgomery as one of the best cities in the U.S. for low cost of living, one of the best places to retire, and one of the most diverse cities in America.
  • Montgomery has been featured in 13 different movies, including The Rosa Parks Story, Heavens Fall, and Selma.
  • Metropolitan Montgomery serves as the region’s healthcare hub and is home to several hospitals including Baptist Medical Center South and Jackson Hospital.
  • Forbes recently wrote about the arts scene in Montgomery, spotlighting the Montgomery Museum of Fine Arts and the National Memorial for Peace and Justice as two of the city’s many must-see attractions.

 

Get Out the Map

Where to begin your search? Roofstock created a heat map of Montgomery based on our Neighborhood Rating, a dynamic algorithm that enables you to make informed investment decisions by measuring school district quality, home values, employment rates, income levels and other vital investment criteria.

Montgomery Heatmap

DARK GREEN: 4-5 star neighborhood
LIGHT GREEN: 3.5-4 star neighborhood
YELLOW: 2.5-3 star neighborhood
ORANGE: 2 star neighborhood
RED: 1 star neighborhood

Ready to invest in the Montgomery housing market? If you haven't already done so, create your free Roofstock account and set up alerts. We'll notify you when we have a Montgomery investment property that matches your search criteria.

 

 

 

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Jeff Rohde

Author

Jeff Rohde

Jeff has over 25 years of experience in all segments of the real estate industry including investing, brokerage, residential, commercial, and property management. While his real estate business runs on autopilot, he writes articles to help other investors grow and manage their real estate portfolios.

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