Posted by: The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

21 responses to “Home Affordability Tanking in 2013”

  1. Plymster

    The affordability index is immaterial in a multiple-offer environment where all-cash buyers are winning (and that’s what I keep hearing is happening). Is there any way to gather data on the percentage of all-cash purchases, and how they are trending?

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  2. softwarengineer

    RE: Plymster @ 1

    Probably Not Plymster

    The banksters protect their cooked books, albeit if I were a lender today, hades, I’d take 50 cents on the dollar from a buyer with a bag of cash…..versus a buyer with 5-10% down with a Freddie/Fannie federal debt backed loan and middle income welfare lower interest rate. I’d be afraid mortgage interest rates in a real American free market should actually be about 10% [money is tight] and I just got agreed to subpar 3-4% interest payments trickling in….that will be WAY underwater when real American interest rates kick in soon.

    A bird in the hand is better than two that flew away from the bush.

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  3. Carl

    Good timing and analysis Tim. Another article that says Seattle will be one of the “bubble” cities if rates rise to historic norms. http://finance.yahoo.com/blogs/the-exchange/10-cities-where-housing-bubbles-may-forming-192514102.html

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  4. Kyle

    Thanks Tim! I love this chart. I think it does the best job of explaining the current real estate market. People paying more for houses….because they can afford the payment.

    Would it be possible to see normalized interest rate, median income and median home price over the same period? It might be interesting to see the variables driving the pits and peaks

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  5. Erik

    I think it’s interesting how Tim is routing for everything to follow the historic housing financial rules. Here is another quote “Hopefully prices will level off before things get really out of hand.” Why do you want the housing market to follow the same boring trend that it did?

    I am personally hoping for financial Armageddon. I would like the market to increase astronomically high as it did in 2007 and then dump down below where it was in the beginning of 2012. This way I can have the opportunity to sell high and buy low. Maybe even pay all cash for a nice house? We should be praying for large fluctuations because those fluctuations create opportunity. The people that want everything to follow the rules are investors that have a large stake in real estate and want to continue collecting at a constant rate.

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  6. SG

    I have mentioned this previously, I will repeat this once again. The chart here assumes that everyone should be able to buy a single family house. But in reality, the Seattle area has far fewer single family homes than there are households. So, we should be considering the average of the top X household incomes if that data is even available. I am not sure if the current affordability is better or worse when compared to historical levels (both measured this way).

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  7. Mike

    RE: SG @ 6 – I was thinking the same thing. There are high income folks who rent, but proportionately you’ve got a lot of folks in the bottom of the median range who are on Section 8 or other assistance and not really in the market as a buyer (well maybe in 2006 they were, but not anymore).

    Something like 2/3 of households are owners, and I think it would be more informative if you took out say the bottom 1/4 of the range of incomes (leaving some extra incomes in at the bottom since it certainly isn’t just the bottom 1/3 of incomes that rent) and then calculated a median income and affordability index off the remainder of the population. You could do the same on the other end and take out 1/4 of the top of the income range when determining if rents were affordable. In each case you wouldn’t be excluding the groups that make up the bulk of the respective market (buying or renting) and so I don’t think it would be a particularly misleading adjustment. Or at least no more misleading than including people who need a rent subsidy in a calculation of whether owning real estate is affordable or a Medina resident in deciding if rents are affordable.

    In a time series this probably doesn’t really matter except to the extent that over time the income distribution around the median moves in a meaningful way. But given the economy of the last decade that doesn’t seem too far fetched.

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  8. pfft

    By Carl @ 3:

    Good timing and analysis Tim. Another article that says Seattle will be one of the “bubble” cities if rates rise to historic norms. http://finance.yahoo.com/blogs/the-exchange/10-cities-where-housing-bubbles-may-forming-192514102.html

    since we are experiencing unusual events(namely the first deleveraging since the Great Depression) we can’t compare our economy to historic norms.

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  9. pfft

    By Erik @ 5:

    I think it’s interesting how Tim is routing for everything to follow the historic housing financial rules. Here is another quote “Hopefully prices will level off before things get really out of hand.” Why do you want the housing market to follow the same boring trend that it did?

    I am personally hoping for financial Armageddon. I would like the market to increase astronomically high as it did in 2007 and then dump down below where it was in the beginning of 2012. This way I can have the opportunity to sell high and buy low. Maybe even pay all cash for a nice house? We should be praying for large fluctuations because those fluctuations create opportunity. The people that want everything to follow the rules are investors that have a large stake in real estate and want to continue collecting at a constant rate.

    how about just saving for a home instead wishing foreclosure and homelessness on some?:)

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  10. ray pepper

    RE: pfft @ 9 – save for a home with no money down FHA loans and countless assistance programs? sub 4% rates with no skin in the game? save for what????? Take it while they are giving it to you!.. Then if these dont work out..Give it back! Its the American way!

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  11. sam

    It took about 4 years for the rates to hit 3.1% (late 2012) since the 2008 recession. How long do you guys think it will take to get back to 6%? We are at 3.75% now and Fed will taper off QE3 sooner or later slowly and eventually stop. I am guessing that by 2016 we should start seeing 5.5% interest rates easily. As the rates go up, some investors who bought in the foreclosure deals will want to cash out, some will sell for natural reasons.

    How many of us got a 7-10% raise every year? Most people get 3% standard of living/inflation offset increases. I don’t see wages going up drastically to keep their Debt/Income ratios under 45% at current prices. Tim is absolutely right on this. We may not have a next wave of foreclosures (most people paid 20% down) but we will see people losing a good chunk of money when they sell.

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  12. doug

    The stock market has topped and soon fair value for the dow will come and that is 3000. Anybody buying real estate now or in the last five years will soon feel extreme losses.
    The politicians have done nothing to solve the problems of outsourcing, temporary labor, massive unemployment and now insourcing H1B visas. We are about to enter a very dangerous and bleak economy. Real estate will not be a good investment until possibly 2025 at the earliest that is unless you are buying funeral homes or cemetaries.

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  13. David Losh

    RE: doug @ 12RE: sam @ 11RE: ray pepper @ 10

    I have never thought we would have another crash, I call it a correction.

    The price of housing is important to everyone. That wealth effect won’t just vanish this time, it will be whittled away. Some properties will maintain value, and others will fade back to pricing from before the crash.

    The crash already happened. Not a lot of damage has been done since then. We have tons of cash in the system, people can afford to get out of the purchases they made, and we may get back to some velocity of money.

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  14. Erik

    RE: pfft @ 9
    That is the slow and painful way to do it. In order for me to save, I would have to make sacrifices other places. I’m not willing to do that. I want to ride this economy to create financial bliss without sacrifice.
    If I knew what I know now, I would have hopefully sold in 2007. Then I would have rebought at the time that I did and paid for my place without a loan. Live mortgage free. Then, repeat this cycle. I think history will repeat and this cycle will happen again. When it does, I’m going to take full advantage. I will dump my houses at the top and buy at the bottom.
    Minimize pain and maximize happiness…. you should try it.
    This isn’t the olden days anymore, where people have to save up and make sacrifice. Many people on here are stuck on the old school mentality. Save your lunch money everyday for a house. Not me pal. I’m going to order 2 lunches, eat them quickly, and buy a house.

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  15. Low Rates Prop Up the Affordable Home Price • Seattle Bubble

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

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  16. corndogs

    RE: David Losh @ 13 – “I have never thought we would have another crash, I call it a correction”

    HAHAHAHA, yeah right Losh, you were all doom and gloom with the rest of Chicken Littles on this site talking about the economy in Greece etc. Now prices are up 30% you want to act like you were cool as a clam and that you know what’s going on.

    What really concerns me about your change of opinion is that I use idiots like you as a barometer as to when I should sell…. If you think things are doing fine, it’s time to get out…

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  17. Marc

    By Erik @ 14:

    RE: pfft @ 9
    Not me pal. I’m going to order 2 lunches, eat them quickly, and buy a house.

    Fortunately for you, you are on the margin. If everybody lived that way the economy would be so unstable and unpredictable that the tools you’d need to get your free lunch (mortgage financing, etc.) would not exist or would be on such undesirable terms that they might as well not exist.

    You’re cavalier attitude makes me sad for you but I do appreciate the fact that you own up to it. I also think the line above is the funniest golly thing I’ve heard all week.

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  18. Erik

    RE: corndogs @ 16
    I see you are on the attack again… That seems to hold true though, when the majority of people think things are good, sell. When the majority of people think things are bad, buy.
    My rich uncle has made a lot of his money in California real estate. He told me in in 2006 to sell soon based on this the fact that everyone thought everything would keep getting better. I didn’t listen because I didn’t understand why it would be like that. I now try to follow this concept.

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  19. Erik

    RE: Marc @ 17
    I don’t concern myself with “following the rules” so I can make sure rich men and women can predict the future and get richer. My job is to look out for myself, and I have done a pretty good job of that recently. You see, there is no reason to feel bad for me. I am doing just fine.Only feel sorry for me if I was dumb enough to save 20% to put down on a house by sacrificing my life and then holding onto a house that I owed way more on than I could sell it for. Those are the people I feel sad for. They can pay a price to get rich people richer, but I’m going to take care of myself.

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  20. Al

    Those NWMLS numbers aren’t repeat sales based right? Can someone link to the methodology of those figures? If they just represent median prices for sales counted in a particular month, then portfolio composition shifts away from distressed sales will exaggerate the rate of home price change.

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  21. David Losh

    RE: corndogs @ 16

    Cypress was worse than Greece, but I have always said correction, and that prices would recede.

    We already had a crash that was then set to recover by extraordinary government intervention.

    You can never underestimate the power of the Fed.

    I’ve seen it in each decade. Two years of rapid appreciation is a warning sign.

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