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Housing Affordability
by Anita Remesch, BS

In the second quarter of 2008, housing affordability decreased due to increases in mortgage interest rates and median home prices. The largest decrease was felt in the Fort Walton Beach MSA (Metropolitan Statistical Area) with a 16.8 percent decrease in housing affordability.  The Pensacola MSA decreased 9.4 percent and the Panama City MSA decreased 5.8 percent.  On the national level, housing affordability decreased 6.1 percent. 

The median home prices mostly remained steady in Northwest Florida.  Panama City MSA had a slight decrease of .5 percent from $193,300 to $192,300.  Pensacola MSA’s median home price increased 3.5 percent from $156,400 to $161,800.  Fort Walton Beach MSA had a substantial 12.7 percent increase from $198,800 to $224,000.   Nationally, the median home price slightly decreased .1 percent from $196,300 to $196,100.  The statewide median home price increased .4 percent from $202,300 to $203,000.  Interest rates nationally increased 10.1 percent from 5.85 percent to 6.45 percent.  Interest rates regionally increased 10.5 percent from 5.82 percent to 6.43 percent.

The housing affordability index measures whether housing is becoming more or less affordable within a region.  To calculate the index, median household income is compared to the required income for a mortgage on a median-priced, existing single-family home.  Required income is a function of the average regional loan rate and equal to four times the annual mortgage payment.  A higher index value indicates an increase in affordable housing.  Housing can become more or less affordable due to a rise in median household income or a drop in the income level needed to qualify.  An increase in affordability can occur when home prices drop or interest rates fall.

Another index to consider in determining housing affordability is the National Association of Homebuilders (NAHB)–Wells Fargo Housing Opportunity Index (HOI).  The HOI for a given area is defined as the share of homes sold in that area that would have been affordable to a family earning the local median income.  According to the NAHB, 55 percent of the new and existing homes sold during the second quarter of 2008 were affordable to families earning the national median income.  In Northwest Florida, the Pensacola MSA has a HOI of 71.8, the Fort Walton Beach MSA has a HOI of 57 and the Panama City MSA has a HOI of 47. 

Housing affordability in Northwest Florida is feeling the effects of the national recession, the subprime mortgage meltdown, and mounting job losses.  Steady median home prices and increases in the interest rates have made housing less affordable in Northwest Florida.

Housing Affordability Index