Huntsville, AL has been a media favorite from US News and World Report, Southern Living, Money Magazine, and the Wall Street Journal. A common thread amongst these reports has been the uncanny affordability of homes within our city.

A few years ago, you could purchase a nice starter home in one of the area’s best school districts for only $175,000. With high inflation, the area’s growth, and attention from outside investors, homes are becoming less affordable in Huntsville, which will be a challenge for the city moving forward.

One of the best ways to measure affordability is by the Housing Affordability Index.

A score of 100 means the median household income can afford the median-priced home. A score above 100, where Huntsville has lived before the pandemic, means the area is more affordable. Just a few years ago, we were seeing scores in the 170+ range.

However, the most recent data came in at 90, which was an increase from the previous month’s score of 80 due to interest rates starting to drop. The good news is that we’re more affordable than other competing cities, and builders have done a phenomenal job of introducing more affordable homes in the mid $200’s to $300’s to help with affordability.

Rising home prices benefit homeowners, but these prices have an adverse effect on first time buyers, which translates now to lower homeownership rates, a rate that has seen an all-time low in context to the past two decades. This is a challenge for society if our police officers, teachers, and nurses can’t live close to the areas they work in.

It will also have long-term implications on our society as fewer kids have backyards to play in and renters are less likely on average to have the same civic pride in their community as homeowners do. It’s also a financial issue as homeowners have 40 times the net worth of renters – $300,000 vs $8000.

So, when does our city no longer become affordable?

Well, the answer depends. Affordability is based on home prices compared to income. The challenge is that home prices outpaced income growth, and there’s no sign of a real estate crash. So, for homes to become more affordable, income needs to outpace the price of real estate.

The good news is that Huntsville ranked #2 in the US for income growth in a recent study by SmartAsset. The bad news is that we have a housing shortage that will take at least 10 years to fix and the only way the Fed has been able to slow down demand is through record velocity of rate increases. The Fed has signaled that rates are coming down in 2024 and 2025.

This could increase the local housing affordability index score again to near 100 and stay at this level through 2025 if rates don’t fall too fast to a level that brings back double-digit home appreciation.

However, to stay affordable we’re going to have to turn our focus away from building high-end apartment complexes and focus on building more affordable housing, including more multi-family homes for sale. If we don’t, Huntsville may no longer be affordable by 2030 for our kids graduating from college and coming home to take their first teaching and nursing jobs.

For more information on the real estate market or for information similar to the article above, please visit the Matt Curtis Real Estate Youtube channel.