Falling Home Prices, Mortgage Rates Make Alabama Housing More Affordable, According to UA Real Estate Center

TUSCALOOSA, Ala. – A decrease in both median home prices and mortgage interest rates affected the Alabama Housing Affordability Index in the fourth quarter of 2006, raising it 3.3 percentage points to 153.4 from the 150.1 figure in the third quarter, according to the Real Estate Research and Education Center at The University of Alabama.

The Center determines the statewide housing affordability index by calculating the ratio of the state’s actual median family income to the income needed to buy 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 loan on the state’s median priced, single-family home, assuming standard underwriting criteria. The higher the index number is the more affordable the housing.

An AHAI of 153.4 means that Alabama families who earn the statewide median income of $51,400 had 1.53 times the income needed to qualify for a loan to purchase the statewide median priced home.

The median home price in Alabama was $134,289 for the fourth quarter of 2006, which represents a 2.1 percent decrease from the median price of $137,212 in the third quarter. The composite mortgage interest rate fell to 6.52 percent from 6.77 percent in the third quarter, a decrease of 25 basis points. The average monthly loan payment required to purchase the statewide median priced home fell from $713 to $698.

“It should be noted that the numbers used to compute the HAI reflect mostly urban areas, which have significantly higher income levels than rural areas in the state,” according to Suzanna Allaway, housing resource specialist at the University of Alabama Center. “While housing affordability improved for the state of Alabama as a whole, this was not true in all locations tracked by the Alabama Real Estate Research and Education Center,” she said.

Housing affordability decreased in four of the 11 Alabama Metropolitan areas and in two of the five counties included in the statewide average HAI. Tallapoosa County’s HAI remained below 100, at 98.6, due to high median home prices in the Lake Martin area, but HAI has been improving in the area for the previous two quarters. None of the areas in the state experienced a dramatic increase or decrease in HAI because median home prices remained relatively steady in the fourth quarter.

Decreasing interest rates and median home prices also increased housing affordability for the nation as a whole in the fourth quarter of 2006. The U.S. figure for HAI was 109.3 in the fourth quarter, an increase of 6.1 percent from the 103.0 figure for the previous quarter. This means that households earning the U.S. median income of $57,837 could better afford a $220,333 house, the median price of a home nationally.

The national HAI rose in the first and fourth quarters of 2006 after a long period of decreasing housing affordability since 2003. As predicted in the last quarter, softening prices coupled with the Federal Reserve refraining from raising interest rates are factors in the improvement of national housing affordability.

Editor’s note: Chart accompanies release

Tara Rich, faculty scholar, contributed to this report