Poverty Rate and Appreciation

During the 2008 housing market crash, homeowners owed more on their mortgages than their home was worth. During this time, we saw areas across the United States with high poverty rates, in addition to high appreciation in years prior, struggle the most. Homeowners in these places saw a 44% decline in home prices when the housing market crashed, whereas homeowners in areas with low poverty rates, and low appreciation, saw a 10% decline in the average home price. Now, home prices are at all-time high and 67% of Americans view now as the worst time to buy a home. As the housing bubble gets set to burst, real estate experts are expecting to see the same decline in home value in high poverty areas that they saw back in 2008.

Areas with a high poverty rate are victims of investor interest for fix and flip. Homes in these areas are cheaper, and investors will come in during the housing bubble to buy. More interest in the area pushes prices up, causing home value appreciation to increase. When the crash begins and the home is updated or repaired, investors list their homes, pushing prices back down. The more appreciation we see in a specific area in the years leading up to a housing crash, the more that area will suffer in the aftermath.

The national poverty rate sits at an average of 14%, and the state of Alabama has an average of 15.5%. To be considered a high poverty area, the average poverty rate will be above 20%, and low poverty areas will see an average poverty rate below 10%. According to data from 2019, Bessemer (35020) and Midfield (35228) have some of the highest poverty rates, sitting at 25.9% and 22.1% respectively. With a higher poverty rate, comes cheaper home prices, and cheaper home prices are an interest to investors from all over.

High home value appreciation has been seen across all areas of metro Birmingham in the past year, but the higher percentages are found in those high poverty areas. For an area to be considered to have high appreciation, there needs to be at least a 10% increase in home value in the past year. Using the same areas from above, Bessemer has seen a 35% increase in appreciation value in the past year; Midfield saw a 29% increase. Areas with low poverty rates, such as Mountain Brook (35223) with a poverty rate of 2.5%, saw only a 17% increase in appreciation this past year. The average rate of appreciation for zip codes in the metro Birmingham area is 14%.

With less Americans wanting to buy, prices will begin to drop, and it will add to speculation of an impending housing market crash. The poverty level and amount of appreciation contribute to how much a specific area will suffer, and if you live in an area with high poverty rates and high appreciation, you are at higher risk of losing home value than any other area. If you are looking to buy a home, checking out the increase in appreciation of homes in the area in the prior years would benefit your investment in the event of a housing market crash.

You can check out the poverty rate for your zip code, as well as other important information, here.

You can check out the appreciation rate compared to poverty rate, ranked with numerous metro Birmingham zip codes through our excel sheet.