FY 2008 Income Limits Documentation System

Median Family Income Calculation Methodology

FY 2008 estimates again take advantage of the 2006 American Community Survey (ACS) data published from the Bureau of the Census. While HUD's FY2008 median family income (MFI) estimates are still updates of 2000 Census data, the 2008 HUD update factors are similar to the methodology employeed to generate FY2007 update factors. In general:

• FY2008 estimates are based on local area ACS 2006 surveys for places of 65,000 or more, where such surveys have been published.

• Estimates for all other areas now reflect the state-level change between the 2000 Census state and 2006 ACS state estimates, rather than being based on applying ACS changes (e.g., 2000-2004 for FY2006 estimates) to 2000 Census estimates.

HUD's FY 2008 MFI estimates make more extensive use of ACS data than previously, although local Bureau of Labor Statistics (BLS) wage data continue to be used to influence estimates for areas of less than 65,000 in population. All estiamtes are projected forward from 2006 to April 1, 2008, using an annual trend factor of 3.5 percent. Except for minor modifications, HUD continues to use the same area definitions used in FY2006.

Comparisons between FY2007 HUD median family incomes and FY2008 median family incomes are valid as indicators of local median family income changes. Overall there are increases in family incomes between these two years.

Due to it's size, the Houston-Baytown-Sugar Land, TX HUD Metro FMR Area has published local area 2006 ACS Survey results.

The step-by-step normal procedures used to develop FY 2008 estimates for Houston-Baytown-Sugar Land, TX HUD Metro FMR Area are as follows:

1. The 2000 Census was used to estimate what are treated as mid-1999 local median family income estimates.

2. The 2000 Census estimates are updates from mid-1999 to end-2006 using the following formula:

   (1 - 5*MoER)* ACS Local Median 2006 Census Local Median 2000

   +

   (5*MoER)* ACS State Median 2006 Census State Median2000

   Where MoER is the "margin of error ratio." The MoER is defined as the margin of error of the 2006 ACS local MFI estimate divided by the 2006 ACS estimate of local MFI. The weight assigned to the change in local median family income from the ACS is the larger of 1 minus 5 times the MoER or zero and the weight assigned to the change in state MFI is five times the local MoER, or one, whichever is smaller.
   NOTE:ACS estimates are based on samples drawn throughout the survey year that ask about income for the previous 12 months, thereby reflecting income over a 24 month period. All responses are then adjusted by the Bureau of the Census to "annual" 2006 values using the average of the sum of the CPI indexes for the 12 months before the survey date over the annual CPI index for the year. See "Income, Earnings, and Poverty from the 2005 American Community Survey", August 2005 page 2 for a discussion of inflation adjustments made by Census for the ACS. HUD makes a further adjustment to these values by moving the "as of" date to December of the survey year, again using CPI indexes. Specifically, HUD adjusts the annual 2006 estimate to December using the seasonally adjusted December 2006 CPI (202.) over the 2006 annual CPI (201.6). All 2006 ACS and BLS data are adjusted to December of 2006 in this way.

3. Median family income estimates for April 1, 2008, are then estimated as follows:

   Step 1 median family income
   * Step 2 adjusted local update factor
   * 1.035 (3.5% annual trending) ^{1.25 years}
   = FY 2008 Median Family Income estimate

Although HUD is revising its median family income estimates to use the new ACS data, it is continuing its hold-harmless policy with respect to income limits. That is, HUD will continue to set income limits at the higher of normal income limit calculations or at the previous year's income limits.

The results of the Median Family Income Step by Step Process

Houston-Baytown-Sugar Land, TX HUD Metro FMR Area Results

1. The following are the 2000 Census Median Incomes (as of 1999) for:

   Area	2000 Census Median Family Income
   Houston-Baytown-Sugar Land, TX HUD Metro FMR Area	$51,315

   NOTE: Since HUD uses area definitions based on the calculation of Fair Market Rents, the 2000 Census Median shown above will not match Census publications as HUD uses special tabulations of Census data specific to HUD's area definitions.

2. The mid-1999 to end-2006 update factor is calculated as follows:

   Area	ACS Local Median2006	Confidence Interval	MoER	Year End 2006 Update Factor	Census Local Median2000	Local Factor Calculation	Weight (1-5*MoER)	ACS State Median2006	Census State Median2000	State Factor Calculation	Weight (5*MoER)	Result
   Houston-Baytown-Sugar Land, TX HUD Metro FMR Area	58,206*	859	859 / 58,206 = 0.0148	(202.8 / 201.6) = 1.00595	51,315	(58,206 * 1.00595) / 51,315 = 58,552 / 51,315 = 1.141	0.926	52,355	45,862	(52,355 * 1.00595) / 45,862 = 52,667 / 45,862 = 1.148	0.074	(0.926 * 1.141) + (0.074 * 1.148) = 1.0566 + 0.085 = 1.1415

   ^*The 2006 ACS Local Median shown here was derived from a special tabulation generated for HUD specific to HUD's area definitions.

3. The FY 2008 median family income is estimated as follows:

   Area	Step 1 2000 Census Area Median Family Income	Step 2 Adjusted Local Update Factor	Trending 3.5% for 1.25 years	FY2008 Area MFI Estimate
   Houston-Baytown-Sugar Land, TX HUD Metro FMR Area	51,315	1.1415	1.0351.25 = 1.043940	(51,315 * 1.1415 * 1.043940) = 61,149.91

4. In keeping with HUD policy, the MFI Estimate is rounded to the nearest $100:

   Area	Unrounded FY 2008 MFI Estimate	Rounded FY 2008 MFI Estimate
   Houston-Baytown-Sugar Land, TX HUD Metro FMR Area	$61,149.91	$61,100

Problems or questions? Contact Peter.B.Kahn@hud.gov.