Home price appreciation has many sellers in today’s market counting their gains. Buyers, however, have not been deterred by rising home prices as total sales statewide have seen year-over-year increases every month in 2018 with the exception of January. Low inventory levels and strong demand from buyers has resulted in properties selling fast in the late spring and early summer months. Additionally, a significant portion of in-demand properties are selling above list price due to buyers competing with one another through multiple offers.
So how much value have Alabama homeowners gained during the last year? Year-to-date through May, the median sales price statewide is $155,096 as compared to $145,450 during the same 5-month stretch in 2017. Averaged statewide, home values are up 6.7 percent year-to-date when compared to one year ago, resulting in an increase in value of $9,646 per home. According to the most recent estimate by the United States Census Bureau, there are an estimated 2,258,596 housing units in Alabama. When multiplied by the estimated average gain of $9,646, Alabama homeowners have gained an estimated $15,880,188,476 in home value during the past year.
There are several significant takeaways from equity gains produced by home price appreciation, even if you do not plan on selling your home any time soon. For instance, homeowners who made a down payment of less than 20 percent may be able to use home equity gains to discontinue their private mortgage insurance (PMI) payments. PMI is no longer necessary when a homeowner passes the 20 percent equity mark, saving an average of $150 per month. Another benefit is that homeowners can borrow against the equity they have in their home through a home equity line of credit, also called a second mortgage. These funds can be used to purchase investment properties, make home improvements, or fund a child’s education. Also, home equity can be used in a person’s retirement years to have monthly income through a reverse mortgage.
On the other side of the coin, home price appreciation is likely to result in higher property tax payments in October. For example, average property tax payments increased in 43 Alabama counties in 2017. Most of the increases were slight as average property tax payments increased less than 2 percent in 28 counties, 2-5 percent in 11 counties, and 6-10 percent in 8 counties. The largest increases were in Greene County (11.8 percent), Baldwin County (19.9 percent), and Bibb County (87.3 percent). Even after the significant increase in Bibb County, the average property tax payment in 2017 was $560, $55 above the statewide average of $505. Although effective property tax rates were essentially unchanged from 2016-2017, many homeowners watched as the assessed value of their home increased as a result of home price appreciation.
Stuart Norton is the Research Coordinator at the Alabama Center for Real Estate.