Housing Affordability in State at All-Time High, According to UA Center

TUSCALOOSA, Ala. – Housing affordability set an all-time record in Alabama in the fourth quarter of 2001, according to the Alabama Real Estate Research and Education Center at The University of Alabama.

The Alabama Housing Affordability Index was 186.7 for the last quarter of 2001, up 17 percentage points from the third quarter of last year. 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 is.

An HAI of 186.7 means that Alabama families earning the statewide median income of $44,700 had almost twice the income needed to qualify for a loan on the statewide median priced home, which in the fourth quarter was priced at $105,635. Stated differently, families earning the statewide median income could afford to purchase a home almost twice as expensive as the state’s median priced existing single family home, or $185,640. The previous record was set during the second quarter of last year when the AHAI reached 178.9.

“The dramatic increase in housing affordability can be linked to two factors,” according to Dr. Leonard Zumpano, director of the center. “Median home prices fell by over $6,000 during the fourth quarter and mortgage interest rates, already low, declined another 35 basis points, averaging 6.71 percent for the period.”

Zumpano said housing affordability rose in all but three of the locations tracked by the center. “The HAI fell in Birmingham, Florence, and Decatur. Not coincidentally, these were the same three locations where housing prices rose during the fourth quarter,” Zumpano said. “Housing prices also rose in Dothan; everywhere else existing home prices fell.”

According to figures released by the center, housing affordability also rose at the national level during the fourth quarter. “Driven by the same fall in mortgage interest rates and median home prices that buoyed the Alabama housing market, the U.S. HAI increased a substantial 16.7 percentage points, from 130.1 in the third quarter to 146.8 during the last three months of last year,” Zumpano said. “The combination of attractive housing prices and mortgage interest rates near record lows have helped sustain the housing sector through the entire year and kept the economy from slipping into a full scale recession.”

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.