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.
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:
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.
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:
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.