Affordable Home Price Climbs Above Median Price

Affordable Home Price Climbs Above Median Price

As promised in yesterday’s affordability post, here’s an updated look at the “affordable home” price chart.

In this graph I flip the variables in the affordability index calculation around to other sides of the equation to calculate what price home the a family earning the median household income could afford to buy at today’s mortgage rates if they put 20% down and spent 30% of their monthly income.

King Co. Actual & "Affordable" Home Prices

The “affordable” home price has been on a fairly steady climb most of the year thanks to still-low rates and slowly increasing incomes. The “affordable” home price in King County hit a 17-month high of $467,848 in October, with a monthly payment of $1,796.

Here’s the alternate view on this data, where I flip the numbers around to calculate the household income required to make the median-priced home affordable at today’s mortgage rates, and compare that to actual median household incomes.

King Co. Home Price, Income Req. to Afford

As of October, a household would need to earn $68,658 a year to be able to afford the median-priced $447,250 home in King County. This is up from the low of $46,450 in February 2012, but down slightly from the 2014 high point of $72,625 set in July. Meanwhile, the actual median household income is around $72,000.

If interest rates were 6% (around the pre-bust level), the “affordable” home price would drop down to $374,344—16 percent below the current median price of $447,250, and the income necessary to buy a median-priced home would be $85,808—19 percent above the current median income.

We’re still at a point with home prices where further gains are likely to be gated by increasing local incomes. If rates start to rise significantly, home price gains will likely stall out as affordability deteriorates.

  
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