Housing Affordability
Index: 3rd Quarter
2003
Housing Affordability Falls for Second
Consecutive Quarter
The Alabama Housing Affordability Index (AHAI) fell 5.1
points in the third quarter to 189.7. Despite the fact that
this is the second consecutive fall in the AHAI, affordability levels remain near record highs in the state.
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 mortgage loan on the state’s
median priced, single-family home. The higher the index
number, the more affordable the housing. An HAI of
189.7 means that Alabama families earning the statewide
median income of $46,794 had nearly twice the income
needed to qualify for a loan on the statewide median
priced home, which in the third quarter was priced at
$110,949. Stated differently, a family earning the
statewide median income could qualify for and purchase a
home valued at $210,470.
The decline in affordability is the result of both home
price appreciation and a recent climb in interest rates.
The median home price in the areas tracked by Alabama
Real Estate Research and Education Center (AREREC)
increased only 1.79 percent to $110,949 from the second
quarter. The average effective interest rate, however, rose
to 5.68 percent from 5.60 percent, according to the
Federal Housing Finance Board. The increase in interest
rates, coupled with the slight rise in median
prices, caused the statewide average monthly
payment to increase 2.59 percent, a higher
increase than the mild rise in home prices would
suggest.
The largest changes in housing affordability
occurred in Marshall and Walker Counties,
which both experienced substantial declines in
affordability; and Cullman County, which
reported a large increase in affordability from
the second quarter. Not surprisingly, these
counties also reported the largest changes in
median home prices from the second to the
third quarter.
The Housing Affordability Index (HAI) at the
national level also fell in the third quarter to
136.2, according to the National Association of
REALTORS® (NAR). The median home price
rose 4.87 percent to $177,133, while the median
family income rose less than one percent to
$53,641. The rise in interest rates had much the
same effect at the national level as it did at the
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state level. While the median family
income remained relatively unchanged,
the 4.87 percent increase in the median
home price, coupled with the rise in
the average effective interest rate,
caused monthly payments to jump
6.07 percent in one quarter, which in
turn dragged down the HAI.
should continue to improve. On the
other hand, an improving economy will
also push long-term interest rates up, as
has been the case over the past several
months. Moderate increases in interest
rates may continue to pull affordability
and home sales down from recent
record highs, but 2003 still looks to be
a record setting year for the housing
market.
Despite the recent increase, historically
low interest rates continue to keep
housing affordable at the state and
national levels. Although rates have
begun to creep up, homebuyers have
not been too discouraged by the moderate decline in affordability. With a
rebounding economy, income levels
will rise and the employment situation
Leonard V. Zumpano, Director
Alabama Real Estate Research
and Education Center
Alabama Housing Affordability Index
3rd Quarter 2003 and 2nd Quarter 2003
Metro Area
Median
Income
Median
Price
Loan/Value
80%
Monthly
Payment
5.68%
Required
Income
HA Index
3rd Quarter
2003
HA Index
2nd Quarter
2003
Anniston
Auburn/Opelika
Birmingham
Dothan
Florence
Gadsden
Huntsville
Mobile*
Montgomery
Tuscaloosa
$44,400
51,300
54,200
46,700
44,700
42,900
59,700
47,200
51,300
50,600
$90,203
132,133
142,300
109,250
93,717
82,117
120,728
127,105
122,633
130,933
$72,163
105,707
113,840
87,400
74,973
65,693
96,582
101,684
98,107
104,747
$418
612
659
506
434
380
559
589
568
607
$5,015
7,346
7,911
6,074
5,210
4,565
6,712
7,067
6,818
7,279
$20,060
29,385
31,646
24,296
20,841
18,262
26,848
28,266
27,272
29,118
221.3
174.6
171.3
192.2
214.5
234.9
222.4
167.0
188.1
173.8
224.6
186.7
169.3
210.8
215.2
232.3
238.5
169.7
198.1
158.9
Baldwin County
Cullman County
Marshall County
Mobile County
Monroe County
Tallapoosa County
Walker County
$47,200
43,500
44,200
47,200
38,500
43,800
37,100
$140,409
87,133
86,733
113,800
88,317
166,800
84,125
$112,327
69,707
69,387
91,040
70,653
133,440
67,300
$651
404
402
527
409
773
390
$7,806
4,844
4,822
6,327
4,910
9,274
4,677
$31,225
19,377
19,288
25,308
19,641
37,094
18,708
151.2
224.5
229.2
186.5
196.0
118.1
198.3
150.7
199.4
258.3
194.1
191.3
128.7
230.5
Statewide Average
$46,794
$110,949
$88,759
$514
$6,168
$24,674
189.7
194.8
US Average
$53,641
$177,133
$141,707
$821
$9,848
$39,392
136.2
143.4
Annual
Payment
County Area
* The Mobile Metro Area, which is made up of Baldwin and Mobile counties, is atypical because of the higher concentration of
vacation properties located in Baldwin County. Because these vacation homes have much higher prices than owner-occupied residential properties, the HAI understates housing affordability for the Mobile Metro Area.
Source: The Alabama Real Estate Research and Education Center, in the Culverhouse College of Commerce and Business
Administration, at The University of Alabama and The Alabama Association of REALTORS.® National data supplied
by the Federal Housing Finance Board, and the Research Division of the National Association of REALTORS.®
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