CENTER FOR BUSINESS AND ECONOMIC RESEARCH / THE UNIVERSITY OF ALABAMA
& ECONOMIC INDICATORS
Volume 68, Number 6
H
June 1999
Alabama Housing Affordability Index
First Quarter, 1999
ousing affordability in
Alabama set a new record
during the first quarter of
1999. The Alabama Housing Affordability Index (HAI), which measures the
affordability of existing housing in the
state and its 10 metropolitan areas,
increased to 166, the highest level ever
recorded since the Alabama Real Estate
Research and Education Center began
compiling the index in 1992.
The higher the index number, the more
affordable the housing. An index
number of 166 indicates that Alabamians, on average, had almost 1.7
times the income needed to acquire the
median priced home in Alabama during
the first three months of the year. Stated
somewhat differently, the increase in the
HAI means that Alabama consumers can
purchase larger and more expensive
homes than would have been possible
last year.
The statewide median price for an
existing, single-family home in Alabama
rose by an impressive $3,075 during the
first quarter of 1999, a 3.2 percent
increase over the last quarter of 1998. If
this rate of price appreciation continued
through the remainder of the year, we
would be talking about a 12 percent
increase in existing housing prices for
the year. While it is unlikely this rate of
appreciation will continue unabated for
the rest of the year, the return on existing
housing for just the first three months of
the year is already ahead of the annual
rate of inflation forecasted for all of 1999.
However, in the more rural locations of
the state, most of which are not used in
the computation of the HAI, price
appreciation is generally lower than in
the more urbanized areas of the state.
How is it that housing affordability can
increase in the face of rising house
prices? The principal explanation for the
record-setting increase in Alabama
housing affordability was a sizeable
increase in family income. For the 10
metro areas and the sample counties
used to compute the HAI, median
estimated family income for 1999 rose by
a strong 7.4 percent. This suggests a
very robust and expanding state
economy. However, a cautionary note is
again called for here. This increase in
income primarily reflects the strong
economic growth in the state’s metro
areas; growth in the remainder of the
state does not share in that. For the
entire state, and all its 67 counties, the
average increase in median household
income, as estimated by the Department
of Housing and Urban Development,
was only 2.43 percent. This does not
compare favorably with the 5.52 percent
income growth reported for the United
States during the same period. Income
growth in the state’s rural locations
continues to lag well behind its more
urbanized, metro areas.
Housing affordability increased in all of
the state’s metro areas except Florence
and Gadsden. Huntsville reported the
highest HAI, an incredible 216.8, while
the Mobile metro area was the least
affordable, with a HAI of 141.1. In large
part, the low index number for the Mobile
area reflects the decline in housing
affordability in Baldwin County, which, in
turn, reflects significant appreciation in
vacation property prices in lower
Alabama. Huntsville traditionally has the
most affordable housing, a situation
which is primarily attributed to the very
high family median income in this metro
area. At $54,600, the median family
income in Huntsville is almost $12,500
higher than the state’s median income,
and $6,700 higher than Birmingham, its
closest competitor within the state.
The state’s housing market has shown
amazing staying power over the last few
years. And the market is showing no
signs of slowing down. So far, all the
conditions necessary for sustaining the
residential housing market remain in
place–low interest rates, high employment, rising incomes, record levels of
consumer confidence, and attractive
home prices in most of the state’s metro
areas.
From the consumer’s perspective, it truly
is the best of worlds. Homeowners and
home-sellers are seeing their net worth
grow as the return on their housing
investment is increasing. At the same
time, buyers, with more income to
spend, can afford to buy more housing
than in earlier years.
Leonard V. Zumpano
A
Alabama Economic Outlook:
Update May 1999
fter the financial crises hit Asia and Russia
in 1998, most economists substantially
underestimated the resiliency of the U.S.
economy, particularly consumer spending. Both the
United States and Alabama economies grew faster than
was expected. U.S. economic growth averaged 3.9
percent, versus an anticipated growth rate of 3.0 to 3.2
percent. More than 3 million net new jobs were added in
1998, an average of almost 260,000 new jobs each
month. Consumer spending accounted for approximately 84 percent of the growth in nation’s Gross
Domestic Product, versus an average contribution of
around 68 to 70 percent in recent years. Economists
have been particularly surprised at the rate at which
consumers have bought big-ticket items like automobiles, furniture, household equipment, and other
durable household items. The current economic
expansion is presently in its 98th month. If it lasts
another ten months, it will be this country’s longest
expansion since 1854, surpassing the 106-month
expansion that began in February, 1961.
The Alabama economy also has remained healthy, with
almost 40,000 net new jobs created in 1998. Forty-five
percent of the new jobs in the state were in services.
Retail trade, a fast-growing sector, accounted for almost
35 percent of all new jobs. Surprisingly, health industries, one of the strongest components within the
services sector in recent years, lost approximately 500
jobs in 1998. The fastest job growth in the state
occurred in the Birmingham and Mobile metropolitan
areas, adding approximately 11,200 and 6,700 jobs,
respectively. These two areas accounted for almost 45
percent of all job growth in the state in 1998.
Factors contributing to the state’s stronger-thanexpected rate of growth are:
•
•
•
•
high levels of consumer spending
low inflation rate
low unemployment rates
low or declining energy and other commodity
prices
• low interest rates
• strong demand for residential housing and
automobiles, and
• strong growth in commercial construction,
particularly in metropolitan areas.
2
Alabama Business and Economic Indicators
Alabama’s Outlook for 1999
Gross State Product (GSP) is expected to increase by
3.3 percent during 1999, reaching almost $1 trillion in
1992 dollars. Most of the growth will be attributable to
productivity increases, as opposed to employment
increases. Productivity has increased approximately 2.0
to 3.0 percent annually during this expansion, versus 1.0
to 2.0 percent increases in previous expansions.
Manufacturing. Manufacturing lost a little over 1,550
net jobs during 1998. Most of the job losses occurred in
textiles and apparel industries. Those plants and mills
lost approximately 700 and 3,800 jobs, respectively.
Other manufacturing industries that lost jobs in 1998
were electrical equipment and steel. Employment losses
will continue in 1999. Most will be in apparel industries,
which alone could lose another 2,200 jobs in 1999.
Although durable goods manufacturers will add about
400 jobs, employment losses in other areas could result
in an overall loss of approximately 3,300 manufacturing
jobs in 1999.
Manufacturing, which accounts for almost 25 percent of
the total value of goods and services produced in
Alabama, has been severely hampered by
• job losses in apparel and textiles
• weak export markets, and
• an influx of cheap imports.
With the major exception of transportation equipment
exports (accounted for mostly by Mercedes-Benz
exports), almost all other exports declined in 1998.
Cheap imports continue to flood domestic markets,
exerting further pressure on domestic manufacturers and
constricting their ability to increase prices.
There is some good news regarding manufacturing. The
most recently released index of factory orders by the
National Association of Purchasing Managers shows a
slight improvement in the manufacturing sector. Output
is expected to increase by about 1.7 percent during
1999, with most of the increase accounted for by durable
goods manufacturing. The strongest sectors will be
automobiles and related production, nonelectrical and
industrial machinery, and, to some extent, lumber and
wood product industries. Motor vehicle production in
Alabama is expected to increase by 4.0 percent in 1999,
and growth in nonelectrical machinery manufacturing is
expected to be around 5.2 percent.
Textiles and apparel industries will remain the weakest
sectors. After declining by approximately 9.4 percent in
1998, the total value of goods and services produced by
apparel manufacturers is expected to decline further by
6.6 percent.
year, a slight slowdown in consumer spending is
beginning to emerge. Consumer expectation and
confidence surveys have begun to slide downwards.
Consumers have noticed the recent hike in oil prices.
Both consumer debt levels and bankruptcies are at
record highs. And the labor market remains tight. If
the economy continues on its current path of strong
economic growth, the Federal Reserve could raise
short-term interest rates, especially since inflation
recently has been at its highest level in eight years. A
recent drop in bond prices shows a trend toward higher
long-term interest rates. Bonds recently closed in on
6.0 percent, primarily due to inflation fears. Fear of
inflation could also be a negative for both consumer
spending and the demand for housing.
Ahmad Ijaz
Annual Employment Gains in Alabama
(Nonagricultural jobs only)
Retail Trade and Services Industries. Both the retail
trade and services sectors should remain strong in
Alabama. Consumer expenditures, increasing at an
average annual real rate of over 5 percent last year, are
expected to remain strong, and will increase by about
4.9 percent in 1999. Most of the job growth in the state
will be concentrated in services and retail trade. The
services sector is expected to add approximately 16,000
new jobs in 1999, while retail trade may gain about
15,000, slightly below the level of jobs created in 1998.
1990
34,492
1991
6,275
1992
32,458
1993
42,308
1994
41,700
1995
45,142
Construction. Both residential and commercial
construction businesses are expected to remain strong
in 1999, although not at 1998 levels. The construction
industry will show a gain of about 3.4 percent, which is
below the 7 percent growth experienced last year.
Almost all construction activity will occur in the state’s
metropolitan areas. Together, residential and commercial construction will add about 2,200 new jobs in 1999.
1996
24,983
1997
37,692
1998
39,667
1999
32,500
Assumptions and Risks
Source: Alabama Department of Industrial Relations, and
Center for Business and Economic Research,
The University of Alabama.
Most of the economic growth in recent months has been
due to an extraordinarily strong consumer sector. Any
slowdown in consumer spending could derail the
economy from its current path. Although inflation is
expected to remain subdued for the remainder of the
For more information about these and other Alabama economic indicators, please visit the CBER Internet site at
http://www.cba.ua.edu/~cber
Center for Business and Economic Research
3
CENTER FOR BUSINESS AND ECONOMIC RESEARCH
Alabama Housing Affordability Index
1st Quarter, 1999 and 4th Quarter, 1998
Metro Area/
County
Median
Income
Median
Price
Loan/Value
Monthly
80%
Payment
Average Quarterly @ 6.94%
Anniston
Birmingham
Decatur
Dothan
Florence
Gadsden
Huntsville
Mobile*
Montgomery
Tuscaloosa
$39,500
47,900
46,500
40,600
40,200
35,900
54,600
40,700
47,000
42,400
$80,133
125,617
99,800
86,000
84,633
87,433
99,133
113,523
96,000
112,267
$64,107
100,493
79,840
68,800
67,707
69,947
79,307
90,818
76,800
89,813
Baldwin County
Cullman County
Lee County
Marshall County
Mobile County
Tallapoosa County**
40,700
38,200
43,700
38,300
40,700
37,400
135,467
100,967
115,383
73,933
91,579
134,000
108,373
80,773
92,307
59,147
73,263
107,200
Statewide Average
US Average
42,114
44,222
99,709
131,100
Annual
Payment
Required
Income
HA Index HA Index
1st Quarter 4th Quarter
1999
1998
$424
665
528
455
448
463
525
601
508
594
$5,089
7,977
6,338
5,461
5,375
5,552
6,295
7,209
6,096
7,129
$20,355
31,909
25,351
21,845
21,498
22,210
25,181
28,837
24,386
28,518
194.1
150.1
183.4
185.9
187.0
161.6
216.8
141.1
192.7
148.7
183.5
139.8
178.2
174.7
190.5
186.6
205.6
132.1
166.1
143.0
717
534
611
391
485
709
8,603
6,412
7,327
4,695
5,816
8,510
34,411
25,647
29,309
18,780
23,263
34,038
118.3
148.9
149.1
203.9
175.0
109.9
113.5
172.5
136.7
192.9
158.1
116.1
166.3
138.0
160.7
137.8
Sources: The Alabama Real Estate Research and Education Center, Culverhouse College of Commerce, The University of Alabama and the
Alabama Association of REALTORS®. National data supplied by the Federal Housing Finance Board and Research Division of the
National Association of REALTORS®.
* 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.
**Tallapoosa County’s HAI represents January and March only.
Alabama Business is a monthly publication of the Center for Business and Economic Research, Culverhouse College of Commerce, The
University of Alabama. Articles reflect the opinions of the authors, but not necessarily those of the staff of the Center, the faculty of the
Culverhouse College of Commerce, or the administrative officials of The University of Alabama.
All correspondence should be addressed to: Editor, Alabama Business, Center for Business and Economic Research, The University of
Alabama, Box 870221, Tuscaloosa, Alabama 35487-0221.
The University of Alabama
Center for Business and Economic Research
Box 870221
Tuscaloosa, Alabama 35487-0221
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