TUSCALOOSA, Ala. — Purchasing a home in Alabama continues to be a challenge as home prices and interest rates continue to increase. According to a recent report from the Alabama Center for Real Estate (ACRE), the state’s Alabama Housing Affordability Index (AHAI™) decreased 7.6% from the first quarter. Affordability decreased as interest rates rose from an average of 6.75% in Q1 to 6.99% in Q2, while the state’s median priced home gained 5.6% during the same period.
However, Alabama’s affordability score did increase slightly from one year ago, rising 1.7%, percent, while the nationwide affordability score decreased 1.1% year-over-year.
All 12 metro areas in the state showed a decrease in affordability from Q1 2024. The Decatur area has the lowest decrease at 2.2% from Q1, followed by the Dothan area with a 4.4% decrease.
For non-metro areas, Monroe County had the state’s only affordability increase during Q2, with the area’s score rising 2.5% to 177.
The statewide AHAI score of 121 during Q2 2024 means that a family earning a median family income of $82,500 has approximately 1.2 times the income necessary to qualify to purchase Alabama’s median priced home of $268,206 (80% LTV).
Anniston-Oxford-Jacksonville remains the state’s most affordable metro area with an AHAI score of 147. Other metro areas with more favorable affordability scores include Gadsden (141), Decatur (135), and Tuscaloosa (132). Areas with less favorable affordability scores include Daphne-Fairhope-Foley (95) and Auburn-Opelika (102).
The statewide housing affordability index is calculated as the ratio of the state’s actual median family income to the income needed to purchase and finance the state’s median priced home. An index number of 100 means that a family earning the state’s median income has just enough buying power to qualify for a loan on the state’s median priced, single-family home, assuming standard underwriting criteria and a 20% down payment. The higher the index number is, the more affordable the housing.
“Even with the slight affordability gain from one year ago, it remains a challenging market, especially for first time homebuyers,” Stuart Norton, Associate Director of ACRE said. “Inflation continues to impact home prices, and saving for a down payment has become increasingly difficult.”
The AHAI™ uses interest rate data from the Freddie Mac’s Primary Mortgage Market Survey. According to the Q2 2024 survey, it recorded a composite monthly interest rate of 6.99%, up from the Q1 2024 mark of 6.75%.
“Affordability will continue to decrease in the third quarter, but if a rate cut from the Federal Reserve happens in late 2024, the outlook for 2025 will be somewhat better,” Norton said.
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.
