Historic Price Changes & Housing Affordability

Written by Jeff Rohde

One of the biggest challenges of investing in rental property is to find markets where the demand from tenants is strong and where home prices have a steady and relatively predictable increase.

To help home buyers and investors forecast the likelihood of future housing price increases Freddie Mac publishes a monthly report of the historic change in home prices for all markets in the U.S. The most recent Freddie Mac House Price Index (FMHPI) report for the Huntsville MSA shows:

  • Over the past five years home prices have increased in Huntsville by 55.3%

  • Over the past year prices have increased by 20.9%

  • Over the last month home prices in Huntsville have increased by 2.1%

The Housing Affordability Index (HAI) is an indicator that investors can use to help predict the current and future demand for rental property. In general, the less affordable homes are the greater demand there is for rental property.

However, in addition to price, factors such as demographics, lifestyle choices and available inventory also influence the demand for rental property. That helps to explain why in markets such as Huntsville where housing is relatively affordable, there are still a large percentage of renter-occupied households.

The Alabama Housing Affordability Index (AHAI) from the Alabama Center for Real Estate uses 100 as a baseline affordability index number. The greater a market’s HAI is above 100, the more affordable a market is, everything else being equal.

Based on the most recent AHAI report, the HAI for the Huntsville MSA was 208.0 in the third quarter of 2020. This means that families here have a little more than twice the median income needed to purchase a median priced, single-family resale home in the Huntsville metro area.

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