Housing Affordability Price Points
The past couple of years have been very interesting for housing markets, to say the least. Households have had to reconsider many aspects of their lives.
Choices in housing have been forefront of lifestyle changes brought about by the pandemic. With an increased proportion of people near retirement age and a growing housing demand from millennials occurring at the same time, we decided to have a look at historic prices and housing affordability to assess how covid may have accelerated previous market trends. More importantly, this analysis provides a flavor of what is in store for home buyers moving forward.
Using the WCRER First Time Buyers Affordability Index, Median House Price estimates, and transaction levels obtained from county assessors offices and MLS providers, we were able to estimate the proportion of homes on the market affordable to first time buyers in each county since 2012 in the 25 largest counties in the state of Washington.
In this graph, the blue line represents the median house price statewide, the orange line represents the price that would be affordable to first time buyers using the WCRER affordability criteria, and the bars represent the proportion of transactions occurring at an affordable price for a first time buyer. For example, in 2020 the median sale price for houses in Washington was $452,400, the affordable price point for first time buyers was $305,429, and the proportion of the market this represented in the 25 largest counties in the state was 13.3%. The trend lines suggest that the gap between median prices and first time buyer affordable prices has widened considerably over the past nine years. Further, there has been no corresponding supply response in the marketplace, with the proportion of affordable homes remaining between 10% and 15% over the past three years.
The following graphs comparing Spokane, King, and Benton Counties illustrate how Covid accelerated existing trends and exacerbated problems in housing affordability beyond the Puget Sound region.
While housing affordability issues are most acute in King County for the entire period, as expected, median prices in Spokane and Benton Counties were affordable to first first time buyers in 2012. Interestingly, the proportion of homes sold in first time buyer price categories in Spokane and Benton counties declined at a faster pace than King County. For example, the first time buyer in Benton or Spokane Counties in 2012 would have had half of the market to choose from where in King County first time buyers only had 30.9% of the market available. Over the past nine years, Benton and Spokane Counties started to converge toward King County levels of affordability. For 2020, the proportion of affordable first time buyer homes in Spokane represents only 14.8% of the market with the same figure for Benton County now at 19.2%. For King County, the proportion was 10%.
Importantly, these trends are taking place in a backdrop of historically low interest rates, reflected in the increased affordability price noted orange line since 2018. If interest rates move up in the coming years, housing will become less affordable overall if prices and incomes remain constant as the proportion of mortgage payments relative to income will deepen. From a policy perspective, this places pressure on rental markets and all parts of the housing ladder where monthly housing costs in the most vulnerable income costs are likely to increase. When additional data becomes available, this analysis will be updated and expanded to all counties in Washington. A more detailed report assessing housing affordability for first time buyers is being prepared for release in Spring 2022.