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It’s been a few months since we took a look at the local affordability index. So, let’s have a new look at all of our affordability index charts.
As of August, affordability is… not great for buyers. Median home prices have been on a steady increase, and despite still-crazy-low interest rates, the index has dipped below the “affordable” level of 100 for the last three months. The affordability index for King County currently sits at 97.3. 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 percent—76.6, which is worse than any point outside of 2006 through mid-2008. If interest rates were anywhere near a “normal” level, we’d be right back into serious bubble territory.
Here’s a look at the index for Snohomish County and Pierce County since 2000:
As usual, Snohomish and Pierce are still seeing much higher levels of affordability than King County, but continue to follow the same general trend. The affordability index in Snohomish currently sits at 123.5, while Pierce County is at 159.7.
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.