Alabama Housing Affordability Declines with Rising Rates and Home Prices

TUSCALOOSA, Ala. — Purchasing a home in Alabama continues to be a challenge even as the state remains more affordable than the rest of the United States, according to a recent report from the Alabama Center for Real Estate (ACRE). In the third quarter report of the Alabama Housing Affordability Index (AHAI™), Alabama recorded an affordability score of 119, while the nationwide score was 93. 

The score indicates that a household earning $79,600, the median family income in Alabama, has 1.19 times the income needed to qualify for a loan to purchase a median-priced single-family home. In the Yellowhammer state, the median sales price is $260,702. 

Nationwide, a family earning the median family income of $96,200 has 0.93 times the income necessary to qualify for a loan to purchase a median-priced home in the U.S. The median home sales price in the U.S. is $401,367.

“Housing affordability declined significantly over the last three years, mainly due to interest rates rising over four percentage points from Q3 2020 and the significant rise in home prices during the pandemic housing boom,” Stuart Norton, Associate Director of ACRE said.

Norton added that increased interest rates and a rise in housing prices have “made it a very challenging market, especially for first-time buyers.” 

According to the AHAI™, the composite monthly interest rate rose to 7.04% in the third quarter of 2023, an 8.47% increase from Q2. Unlike last year’s rates, interest rates have risen 1.46 percentage points, a $250 increase on the home’s monthly payment (principle and interest). 

While the rate increase hurts potential buyers, Alabama remains more affordable than the national average. Although 14 of 17 areas measured had a decrease in their housing affordability index score, Auburn-Opelika and Tallapoosa County were the only markets that were equal to or below the nationwide affordability score of 93.

The highest affordability scores were Anniston-Oxford-Jacksonville (152), Monroe County (143), Decatur (130), Florence-Muscle Shoals (128) and Talladega County (128). Norton said the lower cost of living and proximity to larger metro areas “should incentivize workers to consider a longer commute exchange for greater housing affordability.” 

“Although home prices are unlikely to decline in the near future, many industry professionals expect interest rates to decline gradually during the second half of 2024, easing affordability concerns,” Norton said.