A reader pointed out that we haven’t looked at how the affordability index is doing in the Seattle area since late last year. Let’s update our standard charts.
So how does affordability look as of April? Despite median home prices shooting up, falling interest rates that are back below 4 percent again have kept the index just above the “affordable” level of 100. The index currently sits at 103.3. An index level above 100 indicates that the monthly payment on a median-priced home costs less than 30% of the median household income.
I’ve marked where affordability would be if interest rates were at a slightly more sane level of 6%—79.0. That’s worse than any point other than 2006 through mid-2008. In other words, if interest rates were anywhere near a “normal” level, we’d be well into serious bubble territory.
Here’s a look at the index for Snohomish County and Pierce County since 2000:
Both Snohomish and Pierce are still seeing much higher levels of affordability than King County, but are following the same general trend. The affordability index in Snohomish currently sits at 128.5, while Pierce County is at 166.4.
Tomorrow I will 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.