ATLANTA, Ga. — Although home prices have dropped in recent months, affordability remains a growing challenge in metro Atlanta.

For prospective buyers, factors like location, desirability, and pricing remain key. According to prominent Atlanta-based realtor Jamie Douglas with Keller Knapp Realty, prices have leveled out compared to last year as inventory has increased.

“Atlanta has long been seen as more affordable than other major U.S. cities,” Douglas said. “Some buyers still view it that way, although sales prices and values have risen.”

A July housing market snapshot from Georgia MLS shows home sales cooling, with the number of units sold down 7.2% from last year. Analysts say this gives buyers more time to compare properties, with some waiting to see if the Federal Reserve lowers rates before potentially purchasing.

If priced correctly and marketed well, a home will still sell quickly. Douglas suggests buyers who aren’t ready to purchase a single-family home consider condos or renting instead. Midtown Atlanta, for example, offers one-bedroom condos averaging $305,000–$350,000.

Currently, affording a $400,000 home typically requires an average household income of $103,719, according to data from Redfin, a technology-driven real estate company.

Higher mortgage interest rates make that hurdle even steeper.

According to Redfin, data shows some relief, with metro Atlanta seeing a 2% year-over-year drop in the income needed to afford a median-priced home, which is the sixth biggest decline across the United States. The other cities rounding out the top six include Oakland, West Palm Beach, Jacksonville, San Diego and Tampa respectively.

“Whether buying or renting is right for you depends on your financial situation,” Douglas said. “Renting generally requires income three times the monthly rent and comes with fewer qualifications.”

Douglas recommends prospective buyers contact a local mortgage lender early to determine what they could be pre-approved for, including any other requirements or steps needed to begin the homebuying process.

“Once you complete your mortgage application, your mortgage lender will review your credit and application to determine how much home you can afford at that time. In regard to savings needed to buy a home, this number will look different for each individual but a good rule of thumb that I suggest to my clients is to have at least 3-5% saved of your desired sales price. You can plan to pay for various items upfront including home inspections, appraisals, plus any required deposits.” Douglas said.

Some Atlanta neighborhoods are also experiencing rapid transformation. In the West End, homes are now selling for $500,000–$600,000 amid gentrification and development. The $450 million redevelopment of the West End Mall will add a grocery store, gym, boutiques, and 900 rental units, with some designated as affordable housing units.

Other neighborhoods, including Bankhead, Edgewood, and Old Fourth Ward, Reynoldstown, Kirkwood and East Atlanta have also been heavily impacted by growing gentrification.

A recent report highlights a major housing shortage across metro Atlanta and Georgia. According to Chris Denson with the Georgia Public Policy Foundation, Fulton, DeKalb, Cobb, and Gwinnett counties are facing a shortage of more than 200,000 homes.

Denson adds that as families move further from the metro area seeking affordable housing, longer commutes and increased traffic congestion have become growing concerns.

In response, Georgia leaders are focusing on expanding low-income and affordable housing projects to address these challenges and preserve community diversity. Last month, city officials broke ground on Sylvan Hills Two, a 10-acre development featuring 233 apartments and townhomes.

In May, Georgia Sen. Jon Ossoff launched an investigation into large out-of-state companies buying up homes across metro Atlanta, a trend he said worsened Georgia’s housing crisis.

”These large out-of-state companies have come in and bought up over 70,000 properties,” Ossoff previously said. “They now account for 30% of the region’s single-family rental properties.”

“Houses selling for $150,000 are mostly tear downs, something investors would buy and tear down and rebuild because they need a lot of work,” Douglas said.

When advising clients, Douglas considers not just price but commute, school access, parks, and amenities. Most buyers are comfortable with a 30–40-minute commute. Douglas suggests Hapeville, Fairburn, Avondale, and Johns Creek as attractive cities and towns in the metro Atlanta area for first-time buyers.

Douglas recommends contacting a mortgage lender early to determine pre-approval and savings needs. In Georgia, earnest money is usually 1% of the sales price. Appraisals cost $500–$600, and buyers can sometimes use gift funds or 401(k) withdrawals.

Douglas says she has recently seen additional no-down-payment programs and buyer incentives as pending and closed sales decline.

Despite recent price drops, the affordability gap remains. In March, Bankrate found that the average American needs to earn $117,000 annually to afford a home. The Atlanta Fed reported a median home price above $390,000 in April and income needs above $120,000 in July.

Douglas noted that inventory issues worsened during the COVID-19 pandemic, when low interest rates drew more buyers. “Now, we’re seeing inventory levels increase. New listings increased 20% in March; the pending sales and closing sales decreased,” she added.

Large developments can boost home values and the economy in the area, Douglas added, pointing to the transformation of North DeKalb Mall into Lulah Hills in metro Atlanta. The project will add stores, apartments, and parks, making the neighborhood more desirable and increasing surrounding property values.

Redfin analysis also shows home price growth has recently lost steam.

“Serious homebuyers should consider taking this window of opportunity to act fast and lock in a mortgage rate at the lowest level we’ve seen since last October,” said Chen Zhao, Redfin’s head of economics research.

With home price growth slowing and inventory gradually increasing, qualified buyers should increase their sense of urgency on current mortgage rates and market conditions.