Affordability Rose Slightly in September

Let’s take a look at how affordability is doing in the Seattle area after the last couple months of changes in home prices and interest rates.

So how does affordability look as of September? Slightly better. The index inched back above 100 (i.e. the median-priced home is affordable to a median-income household) thanks to the dip in the median price.

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 84.8 is almost exactly where the index was in August 2005 when I first started Seattle Bubble (rates were 5.82% at the time), but is still quite a bit above the low point in the 60s that the index hit in 2007.

At this point it’s likely that prices will flatten out or even decline through the end of the year, leading to improvements in the affordability index if rates don’t dramatically improve.

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

Snohomish / Pierce County Affordability Index

The affordability index in Snohomish County and Pierce County inched up a bit in September as well.

Thursday I’ll post updated versions of my charts of the “affordable” home price and income required to afford the median-priced home. Hit the jump for the affordability index methodology, as well as a bonus chart of the affordability index in the outlying Puget Sound counties.

Outer Puget Sound Counties Affordability Index

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.

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About 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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.