Seattle WA housing affordability gradually improving

This is the first in a series of educational articles being provided in an effort to help you understand what is really happening in the Seattle WA real estate market. This understanding may help you make sound home buying and selling decisions. The focus will be on Seattle WA housing affordability (including Bellevue WA, Renton WA, Kent WA, Burien WA, Tukwila WA and Seattle neighborhoods like Mount Baker Seattle, Beacon Hill Seattle, Seward Park Seattle and Rainier Valley Seattle just to name a few).

The starting place I have chosen has to do with housing affordability in Seattle WA. Sources will be cited, quoted, linked to and explained. It is my hope that you will go away from these articles with an understanding of how you might want to perceive your Mount Baker WA or Seward Park WA home buying potential. A lot of the time we just look at the "Honey, I think it is time to buy a home!" syndrome. And, by the way, you might be right. So this should just flesh in the bones for you.  You should find this CNN article of interest: Housing affordability back to pre-bubble levels

So, what is this housing affordability issue all about? How does it affect my existence? Simply put, housing affordability tells us a lot about the state of our home construction and home selling economics. Its about, does the cop who protects us, or the teacher of our children have what it takes to buy a home in the neighborhoods where they work? Do you? Below is a list of items which help us interpret Seattle WA community statistics.

1. Seattle WA Housing Affordability
   
2. Percent of Income for Mortgage Payment
3. Mortgage Payment to Rent Ratio
4. Price to Income Ratio
5. Price to Rent Ratio
6. Calculated Quarterly Ratios
7. Why Do You Keep Hearing Different Statistics?

These home affordability measures for the city of Seattle, Washington (the Seattle-Bellevue-Everett, WA) as determined by the percentage of income required to finance a single family home, the mortgage payment to rent ratio, the home price to income ratio and the home price to rent ratio are listed below.  The most recent data is from the 3rd quarter 2007. Below are current ratios.

So, what does all of this housing affordability information mean to you?

What affects affordability and how? 

1. Percent Income simply means that 31.8% of your Gross Income is going towards your housing expense (principal and interest payments as well as real estate taxes, insurance and homeowners dues, if applicable). That's a bit high as guidelines are 28% (but can go significantly higher and still be approved for a mortgage). As used here the percentage of the local median family income required to make payments on the mortgage for a median (sale) priced single family home given a 20% down payment and a 30-year fixed rate loan at prevailing rates. By the way, during the crazy days of mortgage lending this percentage went to the 60% range, currently lenders will go to 45%.
2. The Mortgage/ Rent Price figure is the ratio of the mortgage payment on a median (sale) priced single family (again assuming 20% down and a 30-year fixed rate loan) to the local median rent for a 3 bedroom apartment. This is where my rent vs. own Financial Impact Overview would come in.  Contact Us for your FREE analysis
   
3. Price to Income Ratio has been a good rule of thumb. Historically you would be looking at a multiplier (of your gross income) of around 3-4. So if your combined gross income was $70,000 you would be looking at a home of $ 210,000- 280,000. Lately that ratio has increased and is now at 5.2. Lower interest rates, adjustable mortgages with low starts for five years and interest only options have made these multiples tolerable and contributed to the current mortgage crisis. As used here the median single family home sale price divided by the median family income for the metro area.
   
4. The Price to Rent multiplier is another rule of thumb which divides the purchase price (value) by its corresponding rent. Personally I don't know many people who even know of this number. My appraiser friends do though. A number like 305.7 means that Seattle's housing is on the expensive side. Historically you would be looking at 200 times rent for property value. The median single family home sale price divided by the local median monthly rent for a 3 bedroom apartment.
   

Home prices outpace incomes

Affordability becomes an issue with some buyers partly because house prices are rising faster than income. This gap between house prices and income is now beginning to come back down in the Seattle housing market. The question is how much and how fast. How far do Seattle home prices need to fall? A recent article from the Puget Sound Business Journal, June 6, 2008 titled How King County dodged mortgage mess compared to San Diego was the inspiration for this article. That, and our attitudes towards holding our breath instead of understanding whats going on.

In Seattle between 2000 and 2004 homes appreciated 85%, which sounds like a lot and it was. Wages increased by 55% (source: Harvard University Joint Center for Housing Studies). The Seattle area saw relatively modest home appreciation rates -- in the neighborhood of 10 to 15 percent per year. Those rates were a product of an inventory shortage coupled with demand and a government mandate to increase home ownership rates, from 62.1% in 1960 to a peak of 69.3% in 2005. All of that and lenders made mortgages like drunken monkeys. Disgusting behavior. This confluence of forces caused an irrational exuberance in the housing market. And now we are suffering the consequences.

Comparatively San Diego homes appreciated 159%. That was much more housing appreciation than Seattle home prices experienced. And here is the point, Seattles home prices didnt go up nearly as much as places, like San Diego. So Seattle home values should have much less of a price decline. And it looks like that is what is happening.

So, what does this mean to you!

This article is really about why you think what you do about the current real estate market. What is keeping you from buying a home today and what is preventing you from selling your home in the current market? The objective has been to provide you with a base of information on which you can make your own decisions about what you need to do. Call, bid or fold. Exhale or hold your breath. Life goes on. Yours should too.

Did you know that there was any way to just look and see where our housing economy was functioning? If you look at housing (you call it "Home") as you would a business you would know the numbers of your business. Miss those numbers and you may be sunk. It's all about the numbers.

These ratios tell us something about the state of the housing market. Compare San Diego's ratios with Seattle's above. The higher the number, the more unaffordable the housing market is for many home buyers. San Diego experienced some of the highest annual appreciation rates, as much as 30%. Almost TWICE as much as Seattle's.

To the point, San Diego and many other high demand areas are experiencing major problems, you hear about them every day. These are the numbers that you hear from the National News. And that's why you need to start thinking LOCAL! Thank God, we are not them! Were not them! And the above should help you understand why our situation is not as dire as most people think, or fear.

For would be home sellers

You, who rode the crest of the wave up and didn't sell your home, have no real choice but to lower your expectations as the market slides down into the trough. The real question is .... How much will the market go down, when will you know that it is over and what does that drop really cost you?  It will cost you less than you think to sell into this market. Request your FREE Home Sellers Financial Overview, tailored to your circumstances.  Remember, it is really about the numbers.  Do you know your numbers?  Do you understand what the real costs of not moving on are?  I GUARANTEE that you be surprised at the  benefits of selling and buying your new home.

I enjoy this type of thought process and my background in Seattle real estate and ownership of a major mortgage company make me think this way.  

I have designed analysis for both buyers and sellers, personalized to their situation, which show that they generally will be better off making the decision to take action rather than inaction. They get to achieve life's goals rather than bemoan their fates. It would appear that this might be the right time to take control of your life.

Please, add your comments or questions.

If I can put my professional services to work for you

in buying or selling your next property,

please call me, Dick Todhunter, at 206-898-3776 or Contact Us.

My Loan Officer associates are with Columbia Funding Group

Call Tyler Todhunter at 206-575-7495 ext. 302 or email Contact Us ,

or Fernando Rodriguez at 206-575-7495 ext. 303

for complete details and a Good Faith Estimate, Se Habla Expanol

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