Home affordability in the area continues to slip as home prices outpace wage growth.
The data, released last week by ATTOM Data Solutions, show one in four housing markets nationally are less affordable than historic averages.
Skyrocketing home prices compared with slower-rising wages are to blame, the data show. Pierce, Thurston and King counties are less affordable now than they were a year ago.
Homes in the Puget Sound region cost between 42 percent and 54 percent of a worker’s weekly paycheck, the data show, assuming the median value for each. Nationwide, more than 43 percent of a worker’s paycheck is needed to buy a home in 97 counties, the data show.
Several of the counties are in the Puget Sound area.
“The data also show that the affordability level in King County has eroded to levels we haven’t seen since 2010,” said Matthew Gardner, chief economist at Windermere Real Estate, in a news release about ATTOM’s data. “Moreover, I believe that it will get worse before it gets better thanks to our growing population, inadequate infrastructure and land constraints, which are all driving up home prices in and around the Seattle area.”
The ATTOM report assumes a 3 percent down payment, 30-year fixed rate mortgage and includes property taxes, home insurance and mortgage insurance. ATTOM also examined wage data from the U.S. Bureau of Labor Statistics. The results:
▪ In Pierce County, it costs 43.3 percent of the median wage of $49,500 to pay for a median-priced home of $258,750. Home prices here increased by 8 percent over the previous year, with a 6 percent year-over-year increase in median resident wages.
▪ Thurston County fares a little better than Pierce County, with 42 percent of the median wage of nearly $50,000 going toward home payments on a median dwelling of $249,900. There, home prices have increased by 6 percent while wages increased 3 percent.
▪ In King County, it costs nearly 48 percent of the median wage to pay for a home. However, wage growth is outpacing the median home price, the data show. In the first quarter of this year, the median home sale price was $454,000, a 7 percent increase from a year ago, while the median wage was more than $82,000 per year, an 8 percent increase.
Now for some perspective:
▪ Five years ago, in the depths of the Great Recession, a median-priced Pierce County home cost $163,000. Since then, the median home price has increased by 59 percent, while wages have only risen by 13 percent.
▪ Home prices in Thurston County in that same time have risen slower, by 30 percent from a low of $192,500. Wages there have increased by 15 percent.
▪ In King County, where the median-priced home cost $276,000 five years ago, the median price has skyrocketed by nearly 64.5 percent. Wages there have increased by nearly 25 percent.
But that’s not all.
People making the median income, trying to buy a median-priced home in Pierce County with only 3 percent down, may not qualify for a mortgage, said John Rumpf, vice president and sales manager at KeyBank Mortgage in Seattle.
“If someone is buying a house with a 20 percent down payment based on an income of $49,500, that’s an affordable home for them,” Rumpf said.
A home buyer with the median income wouldn’t want to buy a home much more expensive than that, he said.
“I would say it’s pretty close for somebody who is putting 20 percent down,” Rumpf said.
Assuming an above-average credit score, with conservative estimates on insurance and taxes, Rumpf said the consumer’s debt to income ratio is 34 percent, “which is definitely acceptable.”
However, most people have other debts — credit cards, car loans and student loans. Millenials, those under age 35, have more student debt than any generation before them.
It’s possible to get loans that require a 3 percent to 3.5 percent down payment, Rumpf said. However, those loans can have higher rates and require more mortgage insurance.
A good rule of thumb, Rumpf said, is to not exceed 45 percent of your gross income to pay debts.
“That’s total debts, not just housing,” he said.
For someone earning Pierce County’s median of $49,500 per year, monthly debt and housing payments should not exceed $1,856 per month, he said.
Ever-escalating rent costs combined with high debts mean younger people have less money to save for a down payment for their first home.
The oldest millenials have an average of $18,271 in student loan debt, according to College Investor, with an average net worth of $20,236.
Bankrate.com said last month that Washington is the 15th-worst state for millenials to buy a home. Here, only 3.8 percent of millenials are homeowners, the website said. A tight housing market and low housing affordability also bring down the state’s score, although the job market is relatively friendly to younger people compared to other states, the website says.
However, Washington is nowhere near the least-friendly to first-time home buyers, the report says. California, Hawaii and New York take the bottom three, while Iowa, Utah and Minnesota are the most friendly.