Low Interest Rates Barely Keep Affordability Reasonable

You can get access to the spreadsheets used to make the charts in this and other posts by becoming a member of Seattle Bubble.

Let’s have an updated look at our affordability index charts for the counties around Puget Sound.

As of October, affordability is still bad, but not terrible for home buyers. Median home prices have dipped just slightly in the last few months (as is typical for this time of year), while interest rates continue to hover at absurdly low levels. The affordability index for King County currently sits at 103.1. An index level above 100 indicates that the monthly payment on a median-priced home costs less than 30% of the median household income.

King County Affordability Index

I’ve marked where affordability would be if interest rates were at a slightly more sane level of 6 percent—80.2, which is worse than any point outside of 2006 through mid-2008. We’re still in the unusual situation where “normal” interest rates would put the current market into extreme bubble territory.

Here’s a look at the index for Snohomish County and Pierce County since 2000:

Snohomish / Pierce County Affordability Index

Similar movement in Snohomish and Pierce to what we’re seeing in King County, but with higher affordability numbers. The affordability index in Snohomish currently sits at 126.3, while Pierce County is at 162.4.

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.

Outer Puget Sound Counties Affordability Index

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:

Affordability Formula

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.

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.


  1. 1

    Affording a Mortgage

    Is a a bank qualification issue, as well as personal choice. If the home is going to be the vacuum cleaner of most of your families’ take home pay….you can rationalize this behavior as personal choice. Of course kiss eating out, expensive vacations, dependable cars retirements, health deterioration, property taxes and quality future remodeling expenses good-bye….but do Seattle home owners need to factor these pesky expenses into a family budget? After all, the house is 99% of our quality of life? LOL

  2. 2
    Blurtman says:

    Yellen says low interest rates saved the RE market.

    “Would savers have been better off if the Federal Reserve had not acted as forcefully as it did and had maintained a higher level of short-term interest rates, including rates paid to savers?

    True, savers could have seen higher returns on their federally-insured deposits, but these returns would hardly have offset the more dramatic declines they would have experienced in the value of their homes and retirement accounts.”


    Pay up, home buyers.

  3. 3
    Saffy The Pook says:

    Tim, what’s with all the “we’re just a baby step from a bubble” rhetoric. Chi-by-eye says that affordability is at or below the mean affordability level established over the last 22 years. The interest rates today aren’t “insane”, they are what they are. If they go up, who’s to say we’ll then be in “extreme bubble territory”? More likely, prices will go down.

    Your inflammatory rhetoric is detracting from your credibility, which has always been based on letting the data speak for itself.

  4. 4
    SeattleMatt says:

    The median household income of $78,000 is factored in here. I don’t know anyone who makes that much that doesn’t work in the tech industry.

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