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Sunday, May 14, 2006

"Affording" A Home In King County

There's an interesting pair of stories in today's Seattle Times Real Estate section. The first article sings the praises of buying dumpy houses in crime-ridden neighborhoods. (Okay maybe that's an exaggeration.)

Many first-time buyers swiftly learn that if they want to get into a home they'll have to make accommodations.

Although there are several types — buying with friends or others, thinking smaller, driving farther — the most popular are buying fixers and finding cheaper neighborhoods.
There's a particularly interesting number given in the article:
A household of four earning median income in King County can, conservatively, pay $327,180 for a home. But they won't have many options on the single-family home front except along the King County line, said Elizabeth Grebenschikoff, a real-estate agent with Quorum Real Estate Laurelhurst in Seattle.
If you put 20% down ($65,436—tell me, who has that much?) on a $327,180 house, you'll have a mortgage of $261,744. At an interest rate of 6%, the monthly payment on this mortgage would be about $1,570. The median household income in King County is $55,114, or almost $4,600 per month. $1,570 is 34% of that. Again, I would like to point out that "the generally accepted definition of affordability is for a household to pay no more than 30 percent of its annual income on housing." (US Dept. of Housing & Urban Development) So, I don't know where Ms. Hodges pulls that $327,180 number from, or how she can consider it "conservative," but whatever.

The second article focuses primarily on numbers, and leaves me confused as well.
Using conservative lending estimates from the National Association of Realtors, a household would have to bring in $96,428 to buy that $405,000 home — and that's with a 20 percent (or $81,000) down payment. With nothing down, make that $120,535.
Now we're actually using the word "conservative" correctly. $96,428 per year is $8,035 per month. 30 percent of that is $2,410. Monthly payments on the $324,000 mortgage ($405,000-$81,000) would be just under $2,000. So by my calculations, that actually is a conservative estimate. The way I figure, you would "only" need to make $77,000 (and somehow have $81,000 in the bank) to afford the median home in King County. Again, whatever.
While Seattle isn't considered a "bubble" market, the median price of single-family homes in King County has been rising by double digits every year for several years — 11.9 percent (from $362,000 to $405,000) from March 2005 to March 2006 alone.

Median income in King County hasn't risen as quickly as home prices. Last year, median income in King County was $77,900 for a family of four; $63,120 for a two-person household; and $55,230 for singles.
Okay on this one I'm going to have to call bull. The most recent figures that I've seen are from 2004, and as I said above, they put the "median household income" at $55,114. How could the median household income be lower than even the median single income quoted above of $55,230? Furthermore, the most recent data (again, 2004) on "median family income" for King County puts it at $71,814, not $77,900. Either the author of this article has seen some new numbers that are quite a bit higher than the 2004 data, or they're just making things up.

Can anyone shed some light on this? Where are these numbers coming from?

(Jane Hodges, Seattle Times, 05.14.2006)
(Jane Hodges, Seattle Times, 05.14.2006)

25 comments:

seattle price drop said...

Yes, those were some whacky articles. I posted this on another thread but, since it's directly related:

In today's Seattle Times RE articles, reporter Elizabth Rhodes reports that "Seattle isn't considered a bubble market".

She concedes though, that "median income has not risen as fast as home prices." So buying a house is a "challenge for middle income families and professionals".

Here are a couple of tips from Elizabeth on how to handle the gross unaffordability problem:

Tip #1: (direct quotes)

"Unconventional financing: Buyers often use low-interest or no-interest loans, ARM's or other creative financing methods to get into a home".

Tip #2:

"Group purchases: Some get together with friends or others to buy a home."

Love that second tip. Know a family who'd like to go in o a house with your family?

No bubble here! We'll just buy with ARM's and 2 family's per home! Keeps it affordable!

Dukes said...

Simply incredible, when is some reporter in this city going to do some REAL reporting and point out that resorting to either of these schemes is a joke.

Luckily, prices are going to revert to the mean. If they don't we can all shack up together or get neg arm's.

Personally, renting is a breeze and saving money is great, but I get pissed as I watch the herd mentality, actually it is more of an amazement.

The funniest thing is when someone bought a house a few years ago as most middle class couples used to be able to do, and now all of a sudden they think that they are financial geniuses. Cracks me up.

a house is a home said...

Don't forget too, when you're figuring that 30% of income rule, you've got to add in at LEAST property taxes.

Personally, I add house insurance, property taxes, maintenance for emergencies (a few thousand) and THEN the monthly mortgage payment.

I suspect it is people who are not adding those other costs in who lose their homes because of nonpayment of taxes.

And if your making a major purchase like that, it's downright stupid not to insure it. So add the insurance in.

When the water heater breaks, guess who's got to buy a new one? Add a bit in for stuff like that.

OK. Now you've got your total. Is it worth it? You decide. But don't be a fool and use "creative finacing" to get yourself in over your head.

Really bad advice Elizabeth. The kind of advice that just screams "This market is completely divorced from fundamentals and due for a major correction".

seattle price drop said...

Whoops- the quotes in above post are from reporter Jane Hodges , NOT Elizabeth Rhodes. Mea culpa.

lesserseattle said...

according to the Washington State Office of Financial Management, the projected Median Householod Income in 2005 for King County was $59,718.

www.ofm.wa.gov

The census says it relies on the 2004 American Community Survey--whatever that is. OFM says they extrapolate data from Census 1990 and 2000. I don't know what the difference between 'median household' and 'median family' is.

MarknearSeattle said...

It just amazes me the way prices have gotten out of hand. I could buy a house but the valuations are insane. Up here in Everett, with a bunch of hiring, the inventory is very limited. I hope we have a return to the mean soon!

Anonymous said...

Does this Jane Hodges have some kind of vendetta against society? why the heck would somebody encourage others to take out suicide loans?

As to the doubling up with friends, that's too nuts to even talk about.

things are really out of control.

Hopefully nobody is stupid enough to take her advice.

Anonymous said...

Those higher figures are likely the HUD median household income, which tends to run higher than the census (at least that's true for Portland - where the spread is $44k vs. $65k).

-William

Anonymous said...

Another Seattle Times tip for first time would -be buyers who cannot really afford Seattle:

"Buy in gentrifying areas". Anybody here remember how long these areas have been in the process of "gentrifying"?

10 years ago people were moving to Georgetown, Columbia City,the CD, etc. because other parts of Seattle were getting too expensive.

The hope was these areas would gentrify.

10 years later, the gentrification still hasn't kicked in. Seems 10 years would be a long enough amount of time for that to happen.

If it hasn't happened yet, don't count on it happening.

Anonymous said...

Hey marknearseattle-

According to Zip, there are 528 properties on the market today in Everett.

That doesn't seem "limited", does it?!

At any rate, it's a bad time to buy, and with inventory like that, no worries about waiting.

Prices will only come down so..patience..

seattle long term buyer said...

A good index of the real home value is tracking a home within the parameters that you are looking to buy...

I'm focused on Federal Way since that's where my work is... and it's interesting how last month I could not find anything reasonable (2K sf or so) for less than 400K...

Going on Zip, the same quality homes I was seeing for 400K are now dropping to 375K...

A few more months and it will hit my 325K threshold and I will buy right around the fall season...

I suggest doing this by saving homes in ziprealty and leaving them saved even when inactive and in a few months look at the comps and see how the market has changed...

on a side note... I found one house that had the B#$# to raise prices after 6 days on market... HAHAHA...

PepeDaniels said...

Anonymous said...
Another Seattle Times tip for first time would -be buyers who cannot really afford Seattle:

"Buy in gentrifying areas".

10 years ago people were moving to Georgetown, Columbia City,the CD, etc. because other parts of Seattle were getting too expensive.

10 years later, the gentrification still hasn't kicked in. Seems 10 years would be a long enough amount of time for that to happen.


I'm wondering what your definition of "gentrification" is?

I'm new here in Seattle and when I was looking for places to rent in Georgetown, for example, it was fairly ridiculous. It's kind of a bombed out area in terms of its appearance, located near factories and trucking stuff. I wouldn't mind myself but it's hard to think of it as prime turf? The prices were ridiculous really for apt's. You're definately not going to get say a great view, waterfront walks like Fremont etc. For very modest apartments in Columbia city, Georgetown etc, the prices were pretty high. So, my point is, some of the areas may not look much better but they sure as hell are going up in price as if they were being fixed up?

One thing in Seattle that I think skews things a bit is that more people here seem to split apartments than other parst of the country. So, some of these rentals are really two households in a way. Hardly a good indicator of how well some people are doing - just the opposite really.

sis said...

After reading the Seattle Times articles today, I know we have reached the top and can only go down.

In a healthy market there'd be no need for all these "tips" on how to squeeze yourself into a home.

We're in for a world of trouble when even professionals cannot afford to buy.

and the article that shared page 1, about the poor woman being squeezed by the bank on the reverse mortgage was sickening.

What has this country come to?

Buying a home used to be easy.

Anonymous said...

Pepe- yeah I know. it's nuts about Georgetown, etc. It's still the same dump it was before this whole thing started. the only that's changed is the prices.

So I definitely would NOT buy into these areas with the hope that things will improve.

People who did that in the 90's are still waiting! and with the US economy seemingly heading for a spill, hard to imagine that those areas will be "gaining ammenities" anytime soon.

If they were going to improve, I think it would have happened when the economy was roaring in Seattle.

Anonymous said...

Pepe-
you're right about people "doubling up" just to afford rents. And if you haven't noticed, a lot of the "2 bedroom" apts. are really 1 bedroom plus a dining room or closet or some such crap.

So yes, it's too expensive in Seattle in general. It was fine until about '96 when all the Microsofties cashed in their stocks and RE shot up- overnight.

Property owners here have basically been on a "squeeze you for all you've got" since then.

It's makes them proud that Seattle has "arrived" in terms of how fricking expensive the city is to live in.

Rents AND home prices have been out of whack with wages for going on 10 years now.

We could be in for a MAJOR correction if wages and rents/cost to buy become aligned again.

meshugy said...

In general, I trust the advice of experienced economists. Even though their predictions aren't always right, it's worth listening to what they have to say. They're must more trustworthy then Realtors and ill-informed reporters.

Here are some thoughts from Christopher Thornberg (Senior Economist UCLA Anderson Forecast) on how housing bubbles behave:


Housing bubbles do not pop on the price side, unless there is a substantial loss of employment in the local economy—the kind of employment losses typically associated with a wider recession. And even under those

circumstances the price declines tend to be slow. If you need a good example to go by, the breaking of the late seventies bubble would be a good start. While the US economy was dramatically hurt by the deep recession in 1983 and the shallow one in 1981, only in one year—1982, did California actually see a decline in its workforce. As a result prices stayed relatively stable, falling in value only slightly.

Anonymous said...

Seattle longterm buyer-

I noticed the same thing with my zip account for in-city properties.

thanks for putting the "steps" out for people to see and use.

There is more available every month at lower prices.

Anonymous said...

Columbia City and the CD aren't gentrifying? They're the definition of gentrifying. Ten years ago Columbia City along Rainier was a crack-whore infestation, even during the day. Now you can walk there any night of the week and it's 90% yuppies, families, locals, from Seward Park and Mt. Baker and Beacon Hill. And the other 10% are just passing through.

No amenities? In the last two years, in a four block strip, there are half a dozen new restaurant I can think of off the top of my head--not counting the Subway or Pho shack--a first run movie theater,a bakery, a bookstore, two yuppie bars, and a couple of vintage shops.

Not that it's not still a little dodgy--you can still score crack, if you get a block or two off Rainier and you know what house to go to. Dealers occasionally try to set up shop on some corner or other but the locals run them off pretty quick.

Or mabye by 'gentrifying' you mean, 'exactly like Kirkland'? Because that will probably never happen.

Anonymous said...

Check out the "bubble markets inventory tracking" link.

Inventory's been going up steady for a couple months.

It was going up and down every couple weeks all year til March.

Now we're on an upward trajectory.

Anonymous said...

I'm sorry if I offended you, Anon, with my assertion that these "gentrifying areas" were not exactly gentrified.

It's true that Columbia City has changed somewhat in the past decade.

My point is though, that if Seattle were trully the vibrant place that it is portrayed to be, all of these places would be a LOT further along than they currently are.

And given the state of the US economy, it is doubtful that they will change for the better a whole heck of a lot over the next decade.

So, contrary to what the Seattle Times says, I would advise people that if they like what they see in these places, go for it.

But I would not count on further gentrification at this point. What you see is what you get.

Sorry.

lesserseattle said...

The gentrification of Columbia City took a little over three years. Prices went from $160k to $350k in a very short period of time. Same with a good portion of Beacon Hill.

Anonymous said...

Yeah, but is it considered "gentrification" when there's still drive-by shootings? Like happened today in the CD?

It goes back to what Pepe was saying. A doubling in prices is not gentrification. IMO, it's just overpriced RE.

These areas have been "gentrifying" for years and still don't have much to show for it. Other than wild appreciation.

Georgetown's still fighting the city every few months over some new toxic dump in their backyard. It's nuts to pay a lot to live there.

10 years ago, maybe there'd be hope, but now it's gone on too long to think thoase areas are going to be super great places to live.

Maybe during the next Seattle upswing- 20 years from now.

Anonymous said...

Columbia City has some nice restaurants now. It is moving along slowly.

Anonymous said...

It's amazing to me that some of our friends here can't draw the logical distinction between "gentrifying" and "gentrified." Nobody was arguing that Columbia City was the latter, since it's obviously not. It has improved enormously, but there are still unsavory elements. That's what gentrification is--a process of richer folk moving into a down-at-the-heel area, attracting business and amenities and reducing crime. And anyone who argues that isn't the case with either Columbia City or the CD hasn't stepped out of their car in either area in ten years, if they've been in the areas at all. There was a drive-by shooting last week in the CD? Ten years ago Hudson Street was the freakin' gang line. You went to bed to guns popping off. And it's just not even close to that anymore.

Of course, when The Singularity hits...

RedHotLama said...

In the CD there has been a rise in gang activity, the bloods and crips. Drug activity has increased in my area, and i'm at Broadway and Boren. Yesterday i saw a gang member displaying his colors.

Recently students at Seattle U were robbed and shot at. The area is not any better than when i moved there. i would say its worse.