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Actual Home Prices Edging Above the “Affordable” Price

Posted on September 24, 2015September 29, 2015 by The Tim

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.

King Co. Actual & "Affordable" Home Prices

The “affordable” home price hit $496,051 back in April, but has since dropped off as interest rates have inched up from 3.67% in April to 3.91% in August. As of last month, the “affordable” home price in King County is at $486,233, with a monthly payment of $1,837.

If interest rates were at a more reasonable level of 6 percent (which is still quite low by historical standards), the “affordable” home price would be just $382,986—about $103,000 lower than it is today.

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.

King Co. Home Price, Income Req. to Afford

As of August, a household would need to earn $75,551 a year to be able to “afford” the median-priced $499,950 home in King County. This is up from the low of $46,450 in February 2012, and just barely below the recent high of $76,202 set in June. Meanwhile, the actual median household income is around $73,000.

If interest rates were 6% (around the pre-bust level), the income necessary to buy a median-priced home would be $95,918—31 percent above the current median income.

It’s no wonder the Fed is terrified to raise interest rates.

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Affordability Will Be Destroyed if Interest Rates Increase
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Low Interest Rates Barely Keep Affordability Reasonable

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