TUSCALOOSA, Ala. – Talk about starting the New Year off on the right foot. This was certainly the case for Alabama’s housing market. For the second consecutive quarter the Alabama Housing Affordability Index has set another record high, according to Dr. Leonard Zumpano, director of the Alabama Real Estate Research and Education Center at The University of Alabama.
After declining through the first three quarters of last year, the index rebounded so strongly in the fourth quarter that it set a record to end the year at 172.9, the highest the index number has been since the center began calculating housing affordability in 1992. The index has continued to set records in 2001, increasing to 174.7 during the first three months of the year.
The statewide housing affordability index is calculated as the ratio of the state’s actual median family income to the income needed to finance and purchase 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, existing single family home. The higher the index number, the more affordable the housing. An index number of 174.7 means that Alabama families earning the statewide median income had 1.75 times the income needed to qualify for conventional financing of the statewide median priced home, which in the first quarter was $101,145.
“At the national level, housing affordability increased sharply during the first quarter, up almost 15 percentage points from the fourth quarter,” Zumpano said. “With virtually no change in median home prices at the national level, rapidly declining mortgage interest rates and rising income accounted for the improvement in housing affordability.”
In Alabama, a combination of rising family incomes and significantly lower mortgage interest rates was more than enough to offset the increase in median home prices that occurred during the first quarter of 2001.
“The statewide median home price rose by a very healthy 6.6 percent from $94,907 to $101,145, an increase of $6,238,” Zumpano said. “While this is a substantial quarterly increase, it almost exactly equals the fall in home prices recorded during the last quarter of 2000. In effect, housing prices are back at the same level they were at during the third quarter of last year.”
Commenting on the report, Danny Cooper, executive vice president of the Alabama Association of REALTORS®, said, “REALTORS across the state have been reporting markets on the upswing. It’s more good news for potential homebuyers entering their first home or buying up in the market. The state’s growing home values, low property taxes and increasing family incomes combine to make Alabama a wonderful place to live or retire. And there is no better investment than a home. Our housing markets will continue to benefit from the factors that have generated these positive new figures.”
Zumpano said the average residential mortgage loan rate used in the computation of the first quarter housing affordability index numbers was 7.2 percent. Over the last two quarters mortgage rates have declined by more than 100 basis points and have continued to decline through April, he said. “Such a large decline in mortgage rates – added to the fact that housing prices are only now back to the level they were at during the third quarter of last year – means that a lot more people will be able to qualify for mortgage financing,” according to Zumpano.
The other major factor contributing to the increase in housing affordability is the increase in family income that shows up in the first quarter index numbers. Income numbers for 2001, recently released by the Department of Housing and Urban Development, show an annual increase in statewide median family income of 3.72 percent. A review of the metro areas and counties included in the Affordability Index shows significant variation in the size of the change in family income between 2000 and 2001, according to Zumpano. At the low end of the spectrum, HUD reported no increase in median family income for the Birmingham Metro Area and a .7 percent and 1.72 percent for Florence and Walker County, respectively. The largest increases in income occurred in Dothan (5.3 percent), Marshall County (5.13 percent), Anniston (4.82 percent), and Tuscaloosa (4.64 percent).
Within Alabama, housing affordability rose in ten of the state’s 11 metro areas, declining only in Decatur and Tallapoosa County. In Tallapoosa, the decline in affordability resulted from a very sharp increase in the median home price between the fourth quarter of last year and the first quarter of this year. “The Tallapoosa County housing price numbers must be interpreted with care since there were relatively few sales during the quarter and there is always an substantial month to month variation in home prices because of the presence of waterfront properties,” Zumpano said.
Although the Housing Affordability Index declined in Decatur, the index remains higher than 200 which makes Decatur one of the most affordable metro areas within the state. Median home prices rose in seven metro areas, declining only in Anniston, Birmingham, Gadsden, and Huntsville.
Huntsville still leads the state in housing affordability because median incomes are so high, relative to housing prices in the metro area. Median family income broke the $60,000 level in 2001, with Montgomery a distant second with a median income of $51,700. The Birmingham Metro Area fell to third place with a median family income of $51,100. By way of comparison, median family income for the U.S. was $52,055.
Zumpano said with what seem to be signs of recovery in the stock market, and the possibility of further declines in what are already very attractive mortgage interest rates, the Alabama housing market should continue to strengthen and remain strong through the rest of the year. The only concern on the horizon is the state of the economy and the recent increase in unemployment numbers.
The Alabama Real Estate Research and Education Center is part of The University of Alabama’s Culverhouse College of Commerce and Business Administration. The UA business school, founded in 1919, has been recognized repeatedly during the 1990s for offering a high-quality, cost-effective education.
Source
Dr. Leonard Zumpano, professor of finance, chair of real estate, and director, Alabama Real Estate Research and Education Center, 205/348-8988