After a challenging post-Covid period marked by sharp swings in interest rates and buyer hesitation, Alabama’s housing market entered 2025 with something it had been missing for several years: momentum.

The state recorded 71,485 home sales in 2025, a 3.9% year-over-year increase that reversed the steep 18% decline observed in 2024. While sales activity didn’t return to pre-pandemic norms, the rebound marked a clear turning point — one supported by easing mortgage rates, a resilient labor market, and buyers who increasingly adjusted to a higher-rate environment.

At the same time, prices climbed to new heights. The median home sales price reached $233,969, the highest on record in Alabama, while inventory expanded and listings increased. Together, these signals point to a market that is stabilizing rather than overheating.

Several forces worked in tandem to bring buyers back into the market in 2025. Borrowing costs declined modestly over the year, employment conditions remained strong, and consumers proved more resilient than many expected.

“Borrowing costs have come down somewhat," said AAR economist David Hughes. "The average 30-year mortgage rate peaked in January 2025 at 7.04% and ended the year at 6.15%. More attractive loan rates likely played a role in spurring home-buying, particularly toward the end of the year."

Beyond rates, buyer psychology shifted. After years of volatility, AAR economist Evan Moore noted many buyers have begun to accept interest rates in the 6% range as the new normal.

Hughes and Moore also point to a greater sense of stability for consumers. Alabama ended 2025 with the fifth-lowest unemployment rate in the nation, finishing the year at 2.7%, nearly two percentage points below the national average. Labor force participation reached a decade high of 58% during part of the year, and initial jobless claims declined for the fifth consecutive year — a sharp contrast to national trends.

A greater sense of job security, combined with improved inventory levels helped unlock pent-up demand that had been sidelined for much of the past four years.

While sales activity rebounded, inventory also grew. Alabama had a median of 19,744 active listings in 2025, a 17.6% increase over 2024 and the highest volume in six years.  Even so, listings remained slightly below pre-pandemic levels.

Normally, rising inventory can put downward pressure on prices. In 2025, however, prices continued to rise — a dynamic economists attribute to a combination of seller behavior and longer-term supply constraints.

"Inventory is responding to increased sales prices as owners see an opportunity to profit from a sale,” Hughes said. “Because new building permits declined between 2024 and 2025, it’s reasonable to presume that increased inventory is due to existing homeowners deciding to put their houses on the market.”

When adjusted for inflation, Alabama’s housing market appears far more measured than the headline numbers suggest. Hughes noted that the median home price in 2025 was only 11.2% higher than in 2019, translating to an average annual increase of about 1.9%.

Migration trends also continued to support demand. Alabama ranked ninth nationally for inbound migration in 2025, largely thanks to the state being one of the most affordable places to live in the South. 

“A driver of increased demand includes people moving to Alabama,” Moore said. “The state experienced the 16th fastest rate per 1,000 people in terms of domestic migration among U.S. states.” 

A nearly 10% increase in foreclosures year-over-year might look concerning on the surface. Yet Moore cautions against overreaction.

“Although foreclosure filings reached a six-year high, this should be viewed as the market returning to normal,” he said. “Note that foreclosures are down 41% in 2025 relative to 2019. And while the recent increase is evidence of some stress, the fact that home prices continued to rise suggests that most homeowners still have significant equity.”

Hughes echoed that sentiment, noting that while foreclosures are worth monitoring, current levels do not indicate widespread financial distress.

“Until we see significant declines in consumer purchasing or meaningful increases in unemployment, this data point alone should not lead to widespread concern,” he said.

"If I had to sum up Alabama’s 2025 housing market in one word, it would be ‘stabilization,’" Hughes said. 

After several years of disruption following the pandemic, 2024 appears to have been the inflection point, with 2025 marking a meaningful reversal. Looking ahead, economists expect further improvement.

Moore emphasized that REALTORS® should help consumers understand that the market’s new normal includes higher inventory levels and gradual price appreciation, with local economic health and migration patterns playing a larger role than dramatic interest rate shifts.

With mortgage rates trending lower than recent peaks, inventory levels improving, and Alabama continuing to attract new residents, the state’s housing market enters 2026 on firmer footing than it has seen in several years.