TUSCALOOSA, Ala. — Purchasing a home in Alabama remains challenging, but relief in Q3 2024 came as mortgage rates and home prices dipped, leading to a modest increase in statewide affordability.
According to a recent report from the Alabama Center for Real Estate (ACRE), the state’s Alabama Housing Affordability Index (AHAI™) rose by 6.9% from the second quarter. This improvement was driven by a drop in 30-year fixed mortgage rates, which decreased from an average of 6.99% in Q2 to 6.51% in Q3. The median home price in Alabama also fell by 1.8% during the same period.
Affordability in Alabama improved not only quarter-over-quarter but also year-over-year, with the AHAI score up 8.4% from one year ago. Nationally, affordability also rose, though at a slower rate of 4.3% year-over-year.
Of Alabama’s 12 metro areas, 11 showed increased affordability from Q2 2024. Gadsden led with a 9.4% increase, followed by the Mobile area with a 7.1% rise.
Among non-metro areas, Tallapoosa County experienced the largest affordability increase in Q3, with a 44.3% jump. Due to smaller sample sizes, home prices in non-metro areas tend to show more variability than in larger metro areas.
The statewide AHAI score of 129 for Q3 2024 indicates that a family earning the median income of $82,500 has roughly 1.3 times the income needed to qualify for a loan on Alabama’s median-priced home of $263,515, based on an 80% loan-to-value ratio and standard underwriting criteria.
Central Alabama’s midsize metro areas continue to be the state’s most affordable markets. Gadsden was the most affordable metro area with an AHAI score of 154, followed by Anniston-Oxford-Jacksonville (149), Huntsville (138), and Montgomery (137). Though affordability remains lower in areas like Daphne-Fairhope-Foley (102) and Auburn-Opelika (106), these markets still saw score increases from Q2 to Q3.
The statewide housing affordability index is calculated based on the ratio of the state’s median family income to the income needed to buy the state’s median-priced home, assuming a 20% down payment. An index score of 100 means a family earning the median income has just enough buying power for the state’s median-priced home. A higher index score signifies greater affordability.
“Market conditions for home buyers improved somewhat during the third quarter, providing much-needed relief,” said Stuart Norton, Associate Director of ACRE. “Going forward, interest rates are likely to continue decreasing, and it’s possible that rates could fall below 6% by the end of 2025.”
The AHAI™ uses data from Freddie Mac’s Primary Mortgage Market Survey, which recorded a composite monthly interest rate of 6.51% for Q3 2024, down from 6.99% in Q2 2024.
“Home prices decreased slightly in the third quarter, but slight price gains of 1 to 3% are expected in most markets during Q4 2024 and first half of 2025,” Norton added. “Falling rates will offset these small price increases, resulting in more purchasing power for buyers.”
The University of Alabama, part of The University of Alabama System, is the state’s flagship university. UA shapes a better world through its teaching, research and service. With a global reputation for excellence, UA provides an inclusive, forward-thinking environment and nearly 200 degree programs on a beautiful, student-centered campus. A leader in cutting-edge research, UA advances discovery, creative inquiry and knowledge through more than 30 research centers. As the state’s largest higher education institution, UA drives economic growth in Alabama and beyond.
