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Home Affordability Tanking in 2013

Posted on May 23, 2013May 23, 2013 by The Tim

It has been over four months since we had a look at the local affordability index, So let’s have a look at what the numbers look like with the price increases we’ve seen so far this year through April.

As a reminder, the affordability index is based on three factors: median single-family home price as reported by the NWMLS, 30-year monthly mortgage rates as reported by the Federal Reserve, and estimated median household income as reported by the Washington State Office of Financial Management.

The historic standard for affordable housing is that monthly costs do not exceed 30% of one’s income. Therefore, the formula for the affordability index is as follows:

Affordability Formula

For a more detailed examination of what the affordability index is and what it isn’t, I invite you to read this 2009 post. Or, to calculate your the affordability of your own specific income and home price scenario, check out my Affordability Calculator.

So how does affordability look as of April? Good, but definitely not great:

King County Affordability Index

I’ve marked where affordability would be if interest rates were at a more sane level of 6%. An affordability index of 89.0 is slightly above where the index was in August 2005 when I first started Seattle Bubble (rates were 5.82% at the time). We’re definitely on an unsustainable trajectory right now, and the affordability index is only good thanks to still-crazy-low interest rates. Hopefully prices will level off before things get really out of hand.

Here’s a look at the index for Snohomish County and Pierce County since 2000:

Snohomish / Pierce County Affordability Index

Similar situation, but things haven’t taken quite as steep a plunge over the last few months.

Tomorrow I’ll post updated versions of my charts of the “affordable” home price and income required to afford the median-priced home.

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