State Housing Affordability Index Posts Third Consecutive Drop, According To UA Center

TUSCALOOSA, Ala. – The Alabama Housing Affordability Index fell during the third quarter of the year, according to figures released by the Alabama Real Estate Research and Education Center at The University of Alabama.

This is the third consecutive decline in the index which means that housing affordability has declined throughout the entire year – since the fourth quarter of 1999. The third quarter decline was slight, however, with the HAI falling only 2 percentage points to 155.7.

At the national level, housing affordability also declined for the third time in as many quarters, although the third quarter decline was very small, with the index declining from 126.6 in the second quarter to 125.8 during the last three months.

The statewide housing affordability index is calculated as the ratio of the state’s actual median family income to the family income that is required to finance and purchase the median priced home in the state. 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 on the median priced, existing single-family home, given standard loan underwriting criteria.

The higher the index number, the more affordable the housing. On a statewide basis an index number of 155.7 indicates that Alabama families had one and one-half times more income than needed to finance the statewide median priced home during the third quarter.

“The principal reason for the decline was the sizeable increase in median price of existing housing during the third quarter,” said Dr. Leonard Zumpano, director of the center. “Existing home prices rose in nine of Alabama’s 11 metropolitan areas, the same locations that saw a decline in housing affordability from the previous quarter. The two metro areas showing an increase in housing affordability, Birmingham and Gadsden, both reported a fall in median home prices.

“In one location, Baldwin County, the housing affordability index actually fell below 100. This is the first time that a number below 100 has ever been calculated in the almost 10-year history of the index. Because Baldwin County has a high concentration of vacation properties, which command much higher prices than owner-occupied residential properties, the HAI understates housing affordability for this area. What the low HAI number for Baldwin County really reflects is this county’s very strong economy. ”

Zumpano said worth noting is that the housing affordability index, because it does not adjust for differences in housing quality or changes in home size, tends to understate housing affordability. “In Alabama, as is true across the rest of the U.S., the average home is getting larger,” Zumpano said.

The National Association of Home Builders reported that the average size of a new home in 1999 was 2,225 square feet. By 2000, the size of the average American home had increased to 2,260 square feet.

“Even more telling, since 1970 the average size of a new home has increased by 50 percent,” Zumpano said. “At the same time, the quality of the amenities found in new homes has also improved as more and more Americans are demanding more luxury items – higher ceilings, more glass, center islands in kitchens, hardwood floors and marble countertops.

“When size and qualitative differences are considered, housing remains remarkably affordable for many Americans. This in large part explains why home-ownership rates are at record levels – with almost two-thirds of all American families living in their own homes.”

Although the number of existing home sold in Alabama has declined during the past few months, housing prices continue to rise. While the fall in sales might suggest that the housing market is slowing, rising prices continue to signal a strong housing market, Zumpano said.

“Part of the sales slow down is seasonal, which is expected as we move into the winter months,” Zumpano said. “The slowing economy and the increasingly bearish stock market may be eroding consumer confidence. On the plus side, mortgage interest rates are continuing to decline, which may help offset the effects of rising home prices on housing affordability.”

The University of Alabama Culverhouse College of Commerce and Business Administration, founded in 1919, is home to the Alabama Real Estate Research and Education Center. The Center works with the Alabama Association of Realtors, the Alabama Real Estate Commission and the research division of the National Association of Realtors to compile a state housing affordability index each quarter.

Contact

Bill Gerdes, UA Business Writer, 205/348-8318

Source

Dr. Leonard Zumpano, 205/348-8988