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Housing Affordability Index
by Anita Remesch, BS
In the third quarter of 2008, housing affordability increased due to decreases in mortgage interest rates and median home prices. The largest increase was felt in the Fort Walton Beach MSA (Metropolitan Statistical Area) with a 13.2 percent increase in housing affordability. The Pensacola MSA increased 9.7 percent and the Panama City MSA increased 3.4 percent. On the national level, housing affordability increased 1.2 percent.
The median home prices either remained steady or decreased in Northwest Florida. Panama City MSA median home prices remained steady at $192,300. Pensacola MSA’s median home price decreased 5.8 percent from $161,800 to $152,500. Fort Walton Beach MSA’s median home price decreased 8.6 percent from $224,000 to $204,700. Nationally, the median home price decreased 2.9 percent from $206,400 to $200,400. The statewide median home price decreased 8.7 percent from $203,000 to $185,400. Interest rates nationally decreased 5.6 percent from 6.45 percent to 6.09 percent. Interest rates regionally decreased 5 percent from 6.43 percent to 6.11 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, 56.1 percent of the new and existing homes sold during the third quarter of 2008 were affordable to families earning the national median income. In Northwest Florida, the Pensacola MSA has a HOI of 68.5, the Fort Walton Beach MSA has a HOI of 60 and the Panama City MSA has a HOI of 42.8.
| Loan Amount Required: |
80% |
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| National Loan Rate:1 |
6.09 |
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| Average Regional Loan Rate:1 |
6.11 |
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| Number of Monthly Periods: |
360 |
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| Payment Period in Years: |
30 |
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Median2 |
Median3 |
Loan |
Monthly4 |
Annual |
Required5 |
Housing Affordability Indices |
| Area |
Income |
Price |
Amount |
Payment |
Payment |
Income |
Q3 08 |
Q2 08 |
Q1 08 |
| Panama City MSA |
$53,800 |
$192,300 |
$153,840 |
$933 |
$11,196 |
$44,784 |
120.13 |
116.15 |
123.30 |
| Pensacola MSA |
$55,900 |
$152,500 |
$122,000 |
$740 |
$8,880 |
$35,520 |
157.38 |
143.42 |
158.23 |
| Fort Walton Beach MSA |
$63,200 |
$204,700 |
$163,760 |
$993 |
$11,916 |
$47,664 |
132.59 |
117.14 |
140.82 |
| US |
$61,500 |
$200,400 |
$160,320 |
$971 |
$11,652 |
$46,608 |
131.95 |
129.94 |
138.36 |
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| 1. Interest rates are obtained from Freddie Mac's Primary Market Mortgage Survey (www.freddiemac.com) |
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| 2. Median Family Income data obtained from the US Department of Housing and Urban Development (www.huduser.org) |
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| 3. Median Price data for single-family, existing homes is taken from the Florida Association of Realtors (http://www.floridarealtors.org/) |
| and the National Association of Realtors (realtor.org) for the U.S. & respective MSAs. |
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| 4. The Monthly Payment calculation is based on the 30-yr fixed-rate with level amortization for the U.S. and the respective MSAs. |
| 5. The Required Income calculation is 4 times the Annual Payment amount as required by most mortgage bankers. |
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