Less than half of listings in the South Sound are affordable for homebuyers making the area’s median income of $60,000, according to new data from Zillow.
For those income earners in the bottom third, only 19 percent of listings are affordable.
That problem could be getting worse: The cheapest one-third of listings are also rapidly growing in price, further limiting lower-income buyers’ ability to purchase a home. The value of homes listed in the bottom third are growing faster than any other category.
That’s true across Pierce, King, Thurston and Mason counties, but it’s especially pronounced in Pierce: From June 2015 to June 2016, home prices in the bottom-third category grew by 13.2 percent, compared to 9.5 percent for median home values and 8.6 percent for homes in the top third.
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More people are renting than ever before. The homeownership rate is lower than it’s been in 51 years, since Johnson was in the White House.
Aaron Terrazas, senior economist for Zillow
“There are a lot of parts of the country already in a crisis phase, and big cities are dealing with it and increasingly that’s going to spill over in the neighboring areas. The legacy of the recession, the scarring that occurred, is still with us,” said Aaron Terrazas, a senior economist with Zillow based in Seattle.
“More people are renting than ever before. The homeownership rate is lower than it’s been in 51 years, since (Lyndon) Johnson was in the White House.”
Terrazas presented the data to a roundtable of homebuilders, lenders, county officials and others at a discussion hosted by U.S. Rep. Denny Heck, D-Olympia, on Wednesday in the William Factory Small Business Incubator in Tacoma.
One man who spoke was a married millennial who, because of student debt payments and high rent, said he was unable to save what’s needed for a down payment on a home.
The low homeownership rate, Terrazas said, has “created a lot of demand on the rental side — a lot of these people renting now would like to buy and are sitting on the sidelines.”
And rents are getting more expensive.
“A lot of the even multifamily new construction tends to skew higher-end,” he said. That’s what builders can afford to build; in order to build a new apartment building, they need to be able to charge high rents. There’s very little new supply in the affordable segment.”
19.1% listings affordable for bottom-third income earners in the South Sound
44% listings affordable for median income earners in the South Sound
81.9% listings affordable for top-third income earners in the South Sound
Heck called housing affordability and low homeownership acute problems that should be among the issues front and center in the presidential election.
“The theory behind the value of high homeownership is it roots people to their community; they care more about where they live, they’re more invested in their neighborhoods. Their children, when they have them, are raised in a more stable environment,” Heck said. “It’s just overall better for the entire community.”
The lack of affordable homebuying options for those in the bottom third of income earners also means those people are getting pushed to the outer reaches of the county because they can’t afford to live near urban centers, the data show.
9.5% year-over-year change in home values in Pierce County, 2015
14.3% year-over-year change in home values in King County, 2015
5.4% year-over-year change in home values nationwide, 2015
Since only about 82 percent of listings are affordable to the top third of income earners, those people are more likely to seek houses in the median range, therefore removing options from the more affordable categories and further pushing low income-earners out of the housing market.
“I think what we’re seeing is as home value growth has outpaced income growth, people who a decade ago would have sought the upper tier more are shifting their demand down to a middle- or lower-tier home, and that’s putting a downward pressure on people in the bottom of the market,” Terrazas said. “As people from the middle move to the bottom, people at the bottom have no options.”
Among Zillow’s findings:
▪ Foreclosures in the South Sound are still above prerecession levels: Pierce County’s foreclosure rate is at 7.2 percent, above King, Mason and Thurston counties.
▪ Home values in the South Sound are growing faster than the nation as a whole, but not as fast as King County. In 2015, the year-over-year change for median home values in Pierce County was 9.5 percent, compared with 14.3 percent in King County, 6.9 percent in Thurston County, 5.6 percent in Mason County and 5.4 percent nationwide, Zillow data show.
▪ The share of residents living in the South Sound and commuting to King County is growing, from 30.6 percent in 2005 to 35 percent in 2014.
▪ New construction rates remain low, and construction has largely shifted toward multifamily developments.
▪ While homeownership rates have dropped, in Pierce County the trend has been less dramatic, dipping from 62.1 percent in 2005 to 59.9 percent in 2014. In that time, homeownership in Washington state dropped 3 percentage points while the country as a whole lost 4.3 points, and King and Thurston counties each lost 4.2 points.