As promised in yesterday’s affordability post, here’s an updated look at the “affordable home” price chart.
In this graph I flip the variables in the affordability index calculation around to other sides of the equation to calculate what price home the a family earning the median household income could afford to buy at today’s mortgage rates if they put 20% down and spent 30% of their monthly income.
The “affordable” home price dipped just a bit in March, but is still above the recent low point that was set in September. The “affordable” home in King County now sits at $429,341, with a monthly payment of $1,708.
Here’s the alternate view on this data, where I flip the numbers around to calculate the household income required to make the median-priced home affordable at today’s mortgage rates, and compare that to actual median household incomes.
As of March, a household would need to earn $66,023 a year to be able to afford the median-priced $414,950 home in King County. This is up from the low of $46,450 in February 2012, but down from the recent high of $69,393 in August. Meanwhile, the actual median household income is around $68,000.
If interest rates were 6% (around the pre-bust level), the “affordable” home price would drop down to $356,064—14% below the current median price of $414,950, and the income necessary to buy a median-priced home would be $79,611—17% above the current median income.
With affordability right at the threshold like this, it seems unlikely we will see another year of rapid price increases, especially if interest rates continue to inch up.