Affordability Improved in October & November

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 November? Slightly improved from July, August, and September. The index inched back up to 104.7 (i.e. the monthly payment on a median-priced home costs slightly less than 30% of the median household income) thanks to more dips 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 inched up in October but dipped a bit in November. Affordability in Pierce County increased for the fourth month in a row.

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.

10 comments:

  1. 1

    All You Seattle Area Married Folks Forced to Work Two Jobs to Pay the Rent/Mortgage Are Jealous of My Smart Millenial Daughter?

    To date, she is making her sole bread winner man [below avg income BTW] very happy in Kansas City by cooking and cleaning for him. I sent them a big box of kitchen utensils for the new $600/mo home they’re purchasing….they’re both delighted with my gift(s). She cooked him a big turkey and makes delicious deli sandwiches for him for work each day.

    Will she find employment in Kansas too soon, anyway [high life extra bucks out there]? Most likely, her college education may land her a teaching job eventually [they both got over the flu this month, so her job hunt was put on hold].

    Meanwhile, she has no student loans and a huge savings account SWE taught her to save the last 8 years…which she hasn’t had to touch much so far [she has my Blue Cross too, thanks to the ACA].

    The 6 different video game systems [including the Odyssey] I helped her collect with 100s of different game cartridges went with her and guess what…..her gang of Kansas friends that stop by for parties all the time are all jealous of them, especially that “rare” Motorolla Odyssey system with the arcade quality “made in USA” metal joystick [an old rock band friend of mine converted the Odyssey sticks to work on Nintendo and Atari too, so she uses them on most of her other systems too]. She has many spare Odyssey American designed “metal” sticks and many spare systems too and she won’t sell any of them….LOL….they beg her to sell ’em BTW.

    The Millenials love the Baby Boomers’ old game systems….LOL….don’t throw that old late 80s Nintendo out either, I’ve seen ’em auction out on eBay in the box for like $3500. She also has the original Ninendo batterry handheld game “bringing laundry from the rain”, very rare.

    I stuck a “brand new” 60 Game Galaga/Pacman cocktail professional quality arcade game in my new home bar too, I love it :-) They’re only $1275 delivered on eBay.

    SWE’s home price affordability for the Millenials….

  2. 2
    mike says:

    ^If she was smart she would have bought in one of the fast appreciating Seattle neighborhoods in spring 2012, then turned around and sold the house for a 25-30% gain, then paid cash for the house in flyover country. Now she’s stuck with no job and a $600/mo payment.

  3. 3
    corndogs says:

    RE: mike @ 2 – She was very smart. she moved to the other side of the country away from here dad who randomly starts talking about stupid sh!t like out of date video games.. now they don’t have to keep the lights off to pretend they aren’t home all the time.

  4. 4

    RE: mike @ 2

    Are You Married?

    Does your spouse cook for you? What happens when one of you gets laid off?

    Your lay off chances are twice my daughter’s, there’s two of you working. Then you’re shafted, if that happens.

  5. 5

    RE: corndogs @ 3

    I Hope That Insourced Foreigner Into Seattle Doesn’t Steal Your Job for 1/2 pay.

    Its quite likely BTW.

    Seattle will become another ghost town Detroit?

  6. 6
    mike says:

    RE: softwarengineer @ 4 – Yes, yes, and that’s more or less something we’ve already taken into account as one of us is self employed, which requires a cash cushion to smooth over slow periods already.

    Also, the the mortgage is small enough that it’s within the ‘affordable’ range on what one of us averages in income.

  7. 7
    corndogs says:

    RE: softwarengineer @ 5 – “I Hope That Insourced Foreigner Into Seattle Doesn’t Steal Your Job for 1/2 pay.”

    Corngod doesn’t live in Seattle, he lives where ever the work takes him, today that is Surf City USA. Corngod is a contract engineer who trains non-union engineers in other states and other countries to take the Seattle union jobs. How do you like them apples hmmmmm? Dobriy Vecher, Chornizhopa!

    You’re right Seattle is going to head down the path of Detroit. Fortunately, Corndogs is out the other side of the rabbit hole already and is still making 1%er wages. Being born with a functioning brain is like winning the lottery, only better, because you get to be smart too.

  8. 8
    Erik says:

    RE: corndogs @ 7
    Structures Engineer? Stress Analysis? Fuselage or wing?

  9. 9
    Erik says:

    RE: corndogs @ 7
    I am corndogs… “The women want me and the men want to be me!”

    I thought you lived in Gig Harbor?

    I am taking the approach to get as much education as I possibly can at whatever cost. I wasn’t around for previous layoffs, but I heard that everyone with a Master’s degree didn’t get laid off. In the future I want to be that person with a Master’s degree. I want the MSME and not the MSE, so I am putting in tons of extra work to make that happen. If I just took the MSE last year, I would still be employed. I think it is worth it to get the MSME…. atleast that’s what some boeing executives told me.

  10. 10
    Erik says:

    RE: softwarengineer @ 1
    Moving to kansas is like moving to clark county. People get behind on the times and no longer understand the fast paced world we live in. These people do not grow and better themselves. Kansas and Clark county are places I would move to die, not to live.

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