ALABAMA REAL ESTATE JOURNAL

Alabama Affordable Housing Index ticks up in 3Q

The Alabama Statewide Housing Affordability Index for the third quarter of 2016 was computed at.186.5. This quarter’s HAI increased compared to last quarter’s index of 180.6. The HAI is at its lowest on a quarterly basis since the third quarter of 2011.

The following chart shows the third quarter of the Alabama Housing Affordability Index over the past ten years. The affordability index for the third quarter of 2016 decreased by 15.9 basis points compared to the third quarter of 2015.

The standard definition used by the Alabama Center for Real Estate in describing the statewide housing affordability index is as follows:

“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 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.

The median home price for the quarter used for the calculation is computed from the median prices of homes sold in the reported areas during the last three months in Alabama. The composite monthly interest rate is the average the interest rates of the three months of the quarter of the effective rate of the national averages for all major lenders of loans closed on conventional mortgages as published by the Federal Housing Finance Agency.

The Alabama Housing Affordability Index of 186.5 calculated for the third quarter of 2016 means that an Alabama family which earned the statewide median income of $55,500 had a little over 1.8 times the income needed to qualify for a loan to purchase the statewide median priced home. Calhoun County in the Metro Areas showed an affordability index of.215.5, approximately 2.1 times the income needed to qualify for a loan to purchase the statewide median priced home, while Gadsden showed an affordability index of 282.6, which is over twice the necessary income for the statewide median home purchase. The median price of homes sold and the composite monthly interest rate are the two primary factors that fluctuate and affect the affordability of homes in Alabama, as well as in the nation.

The third quarter of 2016 showed an interest rate of 3.63%, a decrease from 3.73% in the second quarter of 2016. The composite monthly interest rates from the third quarter of 2014 to the third quarter of 2015 are listed below:

Quarter Composite Monthly Interest Rate
2Q 2016 3.73%
1Q 2016 3.94%
4Q 2015 3.90%
3Q 2015 3.98%
2Q 2015 3.79%

The following table shows the quarterly results in the median prices of homes sold from the third quarter of 2016 to the third quarter of 2015.

               Quarter    Median Sales Price of Alabama Homes
3Q 2016 $159,933
                2Q 2016                $230,400
1Q 2016 $137,576
4Q 2015 $145,589
3Q 2015 $149,936

The Estimated Median Family Income projections are produced by HUD and are provided annually.  Following are the changes in the projections from 2015 to 2016. The projections show increases in income in nine of seventeen areas. This is compared to nine areas, of the seventeen shown, that had reductions from 2014 to 2015 in Alabama. The national median family income shows a slight decrease of 5.54 percent. The changes from 2015 to 2016 are shown in the table below.

2015 Estimated Median Family Income (HUD)

  2015 2016 % Inc./Dec.
Talladega Co $44,200 $46,400 4.98%
Gadsden 48,800 51,200 4.32%
Walker 48,000 46,300 -3.54%
Tuscaloosa 52,900 58,800 11.15%
Marshall 47,500 50,700 6.74%
Lake Martin 47,500 48,100 1.26%
Cullman Co 49,500 48,800 -1.14%
Dothan 53,600 57,600 7.46%
Mobile 53,300 52,900 -0.75%
Calhoun Co 49,400 46,700 -5.47%
Montgomery 59,400 60,400 1.68%
Baldwin 60,000 61,100 1.83%
Muscle Shoals 58,600 54,200 -7.51%
Lee County 67,600 60,800 -10.06%
Birmingham 62,500 64,000 2.40%
Huntsville 75,000 71,800 -4.27%
Monroe Co 40,900 37,800 -7.58%
Alabama Statewide $55.500 $55,500 0.0%
US Average 50,500 53,300 5.54%

On the national scene, the National Housing Affordability Index for the third quarter of 2016 was 125.0, which is an increase of 6.1 basis points. The national median sales price for the third quarter of 2016 was $237,967, showing an increase in national housing prices from the second quarter’s median price of $230,400.

A review of the third quarter in the 2016 Alabama Housing Affordability Index revealed that only three areas in the Metro Area group in Alabama showed a decrease from the previous quarter. Muscle Shoals showed the most significant decrease from the second quarter of 2016 AHAI with an 8.69 percent decrease and an affordability index of 222.1, followed by Lee County with an HAI decrease of 6.57 percent which produced an affordability index of 155.4.

For the County Areas, the HAI results from the third quarter in 2016 showed that Monroe County had the strongest results and achieved a 45.2 percent increase with an affordability index of 163.6.  (Please review the AHAI chart for specific details.)

*It should be noted that the numbers used to compute the AHAI reflect mostly urban areas, which have significantly higher income levels than those of rural areas in the state.  Also in smaller volume reporting areas, a relatively small change can cause a large percent of increase or decrease.  Please review the Monthly Housing Statistics posted on the ACRE website at http://www.acre.cba.ua.edu/ to review the volume of sales that produced the Median Home Price for each reporting area.

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