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Originally published August 26, 2009 at 12:15 AM | Page modified August 26, 2009 at 7:13 AM

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Typical King County family can again afford median-priced house

The typical King County family now can afford the typical King County house, according to the Washington Center for Real Estate Research's housing affordability index.

Seattle Times business reporter

What's affordable

The index figures that a King County family having the estimated median income of $81,965 could afford the median house price of $387,500. This assumes a down payment of 20 percent, interest rate of 5.02 percent and monthly payment (principal and interest) of $1,668.

Source: Washington Center for Real Estate Research

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This year, for the first time since 2004, the typical King County family again can afford the typical King County house, according to one widely circulated measure.

The Washington Center for Real Estate Research's "housing affordability index" for the county for the second quarter was 102.4. That means a median-income family earned 2.4 percent more than needed to carry the mortgage payments with conventional financing on a median-priced house, put at $387,500.

King County home prices have experienced double-digit drops since hitting an all-time high two years ago. The improving affordability index indicates "the price declines have been enough to offset the stagnation in incomes" from the recession, said Glenn Crellin, director of the center at Washington State University.

Affordability-index scores in neighboring counties also have risen, a change the four-county Puget Sound Regional Council highlighted in a recent report.

"Equilibrium between home prices and income has been re-established for the typical middle-income family," principal planner Carol Naito wrote.

King County's affordability index also topped 100 in the first quarter. Before then, it hadn't hit that benchmark — the index's dividing line between affordable and unaffordable — in five years.

In the third quarter of 2007, the index dropped to a low of 64.7 — meaning a median-income family earned only about 65 percent of what the research center figures is needed to buy a median-priced house without taking on too much debt.

The improved scores suggest that "real people — people with jobs — can afford to buy houses here again," said Jill Wood, president of Windermere Real Estate.

Tim Ellis, editor of the Seattle Bubble real-estate blog, agreed that houses have become much more affordable recently. He produces his own similar index, which indicates King County houses were even more affordable during the second quarter than during the pre-housing bubble years of 2000-2003.

But the indexes don't factor in the availability of financing, Ellis added:

"It's not nearly as easy to get as it was before. ... The affordability rate is great — if you qualify for the best financing."

To come up with its index scores, Crellin's research center plugs in:

• Each county's median family income — which doesn't include single-person households or households of unrelated persons;

• The median price of single-family homes sold in that county during the quarter;

• The Federal Housing Finance Agency's figures on the effective interest rate for loans closed on existing homes that quarter.

Then the center calculates whether that typical family can afford that median-priced house, assuming a 30-year loan with a 20 percent down payment and an allocation of 25 percent of the family's income for principal and interest payments.

Will the index's trend toward greater affordability continue? That's unclear, Crellin said.

Median home prices — a key component of the index — have dropped in part because a larger share of sales are lower-priced homes being purchased by first-time buyers using the $8,000 federal tax credit, he said.

"What happens when that tax credit expires at the end of November?" Crellin said.

Low interest rates also have been a "huge factor" in improving affordability, Ellis said.

If they rise, affordability could suffer.

The Washington Center for Real Estate Research also produces a first-time buyer affordability index, using lower assumptions for income, house price and down payment.

In King County, that score for the second quarter was 57.0, an indication housing still isn't affordable for many prospective newcomers to homeownership.

But that's up from 36.1 in the third quarter of 2007.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com

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