Alabama Housing Affordability Continues to Set Records, According to UA Center

TUSCALOOSA, Ala. – For the third consecutive quarter the Alabama Housing Affordability Index set a record high, according to the Alabama Real Estate Research and Education Center at The University of Alabama.

In the second quarter of this year the AHAI increased to 179.2, the highest the Index has been since the Center began calculating housing affordability in 1992. This new record tops previous highs set in the last quarter of 2000 and the first quarter of 2001.

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 of $46,056 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.

An index number of 179 means that Alabama families earning the statewide median income had more than 1.75 times the income needed to qualify for conventional financing of the statewide median priced home, which in the second quarter was $99,196. Households earning the statewide median income of $46,052 could afford to buy a home priced as high as $177,556 using conventional financing, a 20 percent down payment and a 30-year term.

At the national level, housing affordability actually fell during the second quarter of the year, declining to 138.2 from 142.9 in the first quarter. In large part the decline in nationwide housing affordability was due to the sharp increase in the national median home price to $147,067 in the second quarter; a $7,367 increase over the first quarter median price of $139,700.

According to Dr. Leonard Zumpano, director of the Center, a combination of lower mortgage interest rates and a small decline in the statewide median home price explain the increase in housing affordability for Alabama.

The median price for existing, single-family homes in the second quarter was $99,196, representing a decline of $1,949 from the first quarter of the year, Zumpano said. The average residential mortgage loan rate used in the computation of the housing affordability index was 7.14 percent, down 6 basis points during the first quarter of 2001.

Within Alabama, housing affordability fell in 6 of the state’s 11 metropolitan areas, while rising in Auburn/Opelika, Decatur, Dothan, Florence, and Tuscaloosa. “These are the same metro areas that experienced a fall in median home prices during the second quarter,” Zumpano said.

“Huntsville still leads all the other state metro areas in housing affordability with an HAI of 222. The metro area with the lowest housing affordability continues to be the Mobile area, which largely reflects the impact of Baldwin County’s very high median home price. At $145,833 in the second quarter, Baldwin County had the highest existing home prices within the state. This, in turn, largely reflects the impact of the very strong market for recreational and vacation homes in the county.”

Zumpano said that at the national level, the economy continued to erode during the second quarter, even bringing down the housing sector, which up until now had remained very strong despite the sagging economy. In Alabama, however, the housing market continues to be robust in most metro locations, he said. “In large part, this reflects the fact that unemployment has remained relatively low within the state’s major metro areas, and the Alabama economy has remained strong.”

Zumpano said a large number of economists and market analysts seem to believe that the sluggish economy has just about bottomed out and the second half of the year will see a slight rebound in economic activity.

“If this is the case, look for the housing sector to finish the year on an up note, “he said. “However, the risks to the housing market are mounting. If the U.S economy continues to soften and unemployment, which has been largely confined to the high-tech sector, continues to rise, this could spill over into the housing sector.

“On the plus side this could induce the Fed Reserve to reduce interest rates yet again. Mortgage interest rates have continued to decline since the end of the second quarter and if housing prices moderate over the coming months, this will represent a major buying opportunity for consumers contemplating the purchase of a home.”

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.