Group Title: Affordable housing issues
Title: Affordable housing issues ; vol. 17 no. 2
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 Material Information
Title: Affordable housing issues ; vol. 17 no. 2
Series Title: Affordable housing issues
Physical Description: Serial
Language: English
Creator: Shimberg Center for Affordable Housing
Publisher: Shimberg Center for Affordable Housing
Place of Publication: Gainesville, Fla.
Publication Date: February 2007
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Bibliographic ID: UF00087009
Volume ID: VID00043
Source Institution: University of Florida
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AFFO R D A B L E


ISSU


FEi


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M.E. Rinker, Sr., School of Building Construction College of Design, Construction & Planning PO Box 115703,
University of Florida, Gainesville, FL 32611-5703 TEL: (352) 273-1192 SUNCOM: 622-7697 FAX: (352) 392-4364


Volume XVII, Number 2


February 2007


Housing A^effordabiit2 ndex in Florida
The affordability of housing is an important issue in Florida and around the nation. Households
are concerned about it because affordability affects their ability to become or remain as a home-
owner, as well as the size and amenities of the home they are able to purchase. Real estate pro-
fessionals and other industry participants also are concerned, because the number of households
able to afford the purchase of a home is an important determinant of single-family sales activity
in their local markets. Housing affordability also has become an important public policy issue,
as home ownership is viewed as being an important goal for both individual and societal reasons.
Household income, housing prices, and mortgage rates are the primary determinants of housing
affordability. For a household considering homeownership, an additional factor is the rate of ap-
preciation in housing prices.


One measure of housing affordability is the cost
of homeownership, commonly conveyed through
housing affordability indices. These indices
generally indicate that affordability increased
substantially towards the end of the last decade,
primarily as a result of lower interest rates during that
period.
A housing affordability index for an area brings
together the price and the income elements that
contribute to housing affordability. The most
common housing affordability index is that used
by the National Association of Realtors (NAR).


The NAR index measures the ability of the median
income household in an area to purchase a median
priced house in that area. In addition to the median
income and median house price, the index requires
the current mortgage interest rate, assumptions about
the down payment required to purchase the median
priced home, and the maximum percentage of
household income that can be spent on housing. An
index of 100 indicates the median-income household
in the area has sufficient income to purchase a single-
family home selling at the median price.
The Shimberg Center calculates affordability indices
for all counties in Florida. Our index calculations
differ from those of the NAR because we use the


H 0 S N G








property appraiser data from the Florida Department
of Revenue as the source for home sales transaction
prices rather than the Multiple Listing Service
used by the Realtors, and our median income
is household income rather than family income.
Median household incomes are purchased from
Claritas. Our index numbers are therefore not
directly comparable, but do give an indication of
relative affordability across the state. As can be seen
in Table 1 the number of counties with an index value
below 100 totaled 49 in 2005, an increase from 15 in
2003. These numbers point to a lessening of housing
affordability in Florida in between 2003 and 2005.
Although important, median sale prices in a county
or metropolitan statistical area (MSA) does not alone
determine housing affordability. A second important
factor is the income of area residents. The highest
household incomes in Florida are generally in the
coastal counties that also contain many high priced
housing units. However, median household incomes
and single-family house prices in an area are only
moderately correlated, a condition that can lead to
significant differences in housing affordability across
counties and MSAs.

Our index construction method can be represented by
the following formula:


Affordability Index


Median household income 100
Qualifying income


Qualifying income is defined as the income needed to
qualify for a mortgage to finance an existing median-
priced home. As an example, the median household
income in the Alachua County in 2005 is $35,550,
the median 2005 sales price of a single-family home


is $184,300, and the 30-year mortgage interest rate
of 5.87 percent and yields a mortgage constant of
0.00588, the calculated affordability index is 71.58:

$35,550
4x12(0.95 x $184,300) x 0.00588

$35,123
$49,416

=71.58
The denominator is the annual mortgage payment,
multiplied by 4, because the income needed to qualify
for a 5 percent down, 5.82-percent, monthly payment
loan is assumed to be four times the annual mortgage
payment. This is equivalent to a household spending
25 percent of their monthly income on mortgage costs,
and is consistent with the qualifying ratio used by
residential mortgage lenders. The calculated index
of 94.58 indicates that median household income in
the area is 5.42% below the amount typically needed
to qualify for the loan. The higher the calculated
affordability index, the easier it is for a household in
the area with median income to purchase a median-
priced home, and the lower the affordability index, the
harder it is for a household with the median income to
purchase a median priced home.

When interpreting the affordability indices for each
county, several caveats should be considered. First,
as a result of the limited sales transactions in some
smaller counties, the median sale price may vary
considerably from year-to-year. This fluctuation
in the estimated median house price produces an
exaggerated variability in the calculated affordability
index. Second, the calculation of the index using
median house prices and incomes may mask the


Affordability indices are calculated by NAR only for the
nine largest metropolitan areas in Florida. Moreover,
most of these MSAs are recent additions to the report,
and thus provide little historical information on how
housing affordability has changed over time and across
counties. In addition, the affordability indices published
by NAR are based only on homes that have sold through
the use of a multiple listing service. Thus, the home
sales used to calculate the median sale price may not be
representative of all housing stock in the area.


After several comments about last year's Affordability
Index, we have changed our down payment assumption
to 5 percent instead of the 20 percent used in the past.
It is believed that this change better reflects what is
occurring in Florida's housing market. Please note, that
this change effectively increases the required qualifying
income, and will lower housing affordability as com-
pared to last year's report.








distribution of affordability across the various income
brackets within a county. For example, if house
prices in a county tend to be tightly clustered around
their median value, while incomes are more widely
dispersed, then affordability problems will exist at
the lower income ranges that are not identified by
the affordability index. Thus, standard indices based


on median house prices and median incomes are
only one measure of housing affordability. What the
affordability indices provide is an indication of the
relative change in affordability within counties over
time, and the relative affordability of housing across
counties.


Tal 1: Cont Afodblt Index 20032005


County
Alachua County
Baker County
Bay County
Bradford County
Brevard County
Broward County
Calhoun County
Charlotte County
Citrus County
Clay County
Collier County
Columbia County
DeSoto County
Dixie County
Duval County
Escambia County
Flagler County
Franklin County
Gadsden County
Gilchrist County
Glades County
Gulf County
Hamilton County
Hardee County
Hendry County
Hernando County


2003
94.31
158.14
106.89
160.64
124.60
83.34
182.15
107.13
135.39
137.69
74.68
129.29
149.59
135.23
118.82
130.64
125.33
45.76
145.56
132.19
160.05
67.49
138.77
190.14
179.25
126.68


Highlands County 141.62
Hillsborough County 113.49
Holmes County 183.39
Indian River County109.79
Jackson County 155.95
Jefferson County 139.35
Lafayette County 143.78


2004
79.76
133.75
90.23
137.45
100.89
67.86
139.20
88.70
108.79
117.63
61.25
102.00
126.76
109.29
106.63
120.66
101.71
33.75
114.09
104.16
142.35
51.35
115.92
155.64
123.73
104.52
121.22
98.19
172.60
93.87
133.34
133.51
157.17


2005
71.58
108.19
74.46
115.02
78.61
56.33
137.02
68.26
86.52
106.50
48.42
90.17
81.52
90.77
97.25
103.89
78.55
36.72
102.00
90.53
105.34
52.33
117.91
146.30
90.04
84.22
88.44
81.91
161.22
79.63
131.20
103.35
91.25


County
Lake County
Lee County
Leon County
Levy County
Liberty County
Madison County
Manatee County
Marion County
Martin County
Miami-Dade County
Monroe County
Nassau County
Okaloosa County
Okeechobee County
Orange County
Osceola County
Palm Beach County
Pasco County
Pinellas County
Polk County
Putnam County
Santa Rosa County
Sarasota County
Seminole County
St. Johns County
St. Lucie County
Sumter County
Suwannee County
Taylor County
Union County
Volusia County
Wakulla County
Walton County
Washington County


2003
104.20
97.85
113.81
131.26
145.54
187.43
83.34
102.36
78.39
73.89
41.96
108.33
133.77
125.53
103.01
108.42
77.36
102.44
108.55
125.35
146.83
161.55
86.90
103.50
78.54
146.34
99.56
149.68
173.29
173.32
109.55
111.10
55.34


2004
91.01
7.11
95.71
92.89
193.60
142.17
67.00
93.51
64.31
58.87
29.79
100.21
108.88
102.13
88.25
86.42
62.14
90.42
94.36
108.59
121.80
134.79
73.47
95.03
70.95
115.67
75.96
133.39
133.73
135.16
95.46
100.25
38.97


2005
71.10
66.65
91.54
81.42
190.07
135.67
54.89
83.71
56.49
49.69
24.38
88.41
88.15
85.74
69.10
64.96
50.71
73.62
82.01
89.54
99.08
102.51
59.32
73.07
63.42
88.36
69.36
94.35
123.54
162.95
78.53
89.12
33.33


167.40 137.79 115.52








Forty-nine Florida counties had an affordability
index below 100 in 2005 and 18 counties had
indexes above 100. These 18 more affordable
counties are generally rural counties in the interior
of the state, mostly in the north part of the state. It
should be emphasized that most of the counties
with the highest affordability indices also had fewer
than 300 transactions in 2005. The small number of
transactions is not surprising in small counties, but
may be indicative of the level of competition in the
market and therefore the lack of pressure on housing
prices.


The information presented in this newsletter will
appear in The State of Florida's Housing 2005 to
be released by the Shimberg Center for Affordable
Housing in April 2007. The conclusion drawn from
the Affordable Housing Index results in Table 1 is
that median-income households can afford median
priced housing in only 18 of Florida's 67 counties.
The entire publication will be available on the
Internet by going to www.flhousingdata.shimberg.
ufl.edu, selecting the "Library", and clicking on the
"Publications & Presentations" of the Shimberg
Center.


Affordable Housing ISSUES is prepared bi-monthly by the Shimberg Center for Affordable Housing for the purpose
of discussing contemporary issues facing affordable housing providers. Reproduction of this newsletter is both permitted and
encouraged. Comments or questions regarding the content are welcome and should be addressed to Robert C. Stroh, Director.


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