Priced out: Home appreciation report
Despite earning wages higher than the national average, Seattle-area buyers increasingly are being priced out of the single-family home...
Seattle Times staff reporter
Despite earning wages higher than the national average, Seattle-area buyers increasingly are being priced out of the single-family home market — one of the most expensive in the nation, according to just-released sales statistics.
The median price of a single-family home in the combined Seattle-Bellevue-Tacoma area was $325,000 in the third quarter, according to the National Association of Realtors. That's 50 percent higher than the national average.
Only 19 other metro areas had higher median house prices, the NAR found, while 133 were less expensive than Seattle. (Median means half sell for more, half for less.)
In fact, the NAR's numbers reveal that Seattle-Bellevue-Tacoma combined is the most expensive metro area north of San Francisco and west of Washington, D.C.
"Seattle has been a relatively expensive market for quite a while, and that situation isn't going to change," said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.
With mortgage interest rates climbing almost 1 percent in the past few months to nearly 6.5 percent, what is changing is buyers' ability to pay.
"Affordability here has come down tremendously," Crellin said. "We've got the lowest affordability statewide I've seen since 1994, when the center began keeping statistics."
King County buyers earning the median wage now have just 85 percent of the income needed to buy the median priced house, Crellin said.
And because home prices are rising faster than wages, first-time King County buyers now have just 47 percent of the income to buy a starter house. Crellin defines that as a single-family home priced 15 percent under the median, or around $276,000.
"These are the folks where it would have been a stretch under the best of circumstances to get into the housing market, but now it's virtually impossible for them to afford single-family housing in most neighborhoods," he said. "Condos are now the true alternatives for first-time homebuyers."
Crellin calculates that first-time buyers earn about 70 percent of the area's median household income. In King County that's about $40,000, based on a median household income of $57,147.
Seattle-area homes appreciated faster than the national average from the third quarter of 2004 through the third quarter of 2005, according to the NAR, which figured that local appreciation amounted to 16.8 percent, compared with the national average of 14.7 percent.
That doesn't surprise Crellin.
"We have a number of communities in the Midwest and South that haven't had as much appreciation," he said. Many of those communities have yet to see median house prices hit $200,000.
For example, no metro areas in Indiana, Kentucky, Nebraska or Ohio posted more than 8 percent price growth, and six towns, including Elmira, N.Y., and Topeka, Kan., actually saw prices drop.
Elmira's median price is now $77,100, down from $81,500 in the third quarter of last year. Topeka's median was $108,300.
Despite its strong showing, the Seattle area's appreciation rate was 2 percentage points less than the 18.8 percent rate for all of the metro areas in the West combined. And it was downright puny compared with the Phoenix area, Tucson and Honolulu, all of which appreciated at least 30 percent in the previous year.
The pull of warm weather might explain part of that, but what's to explain appreciation in the Spokane and Portland areas? Both registered higher appreciation than the Seattle metro region did.
Portland-Vancouver-Beaverton showed a 20 percent increase, to a median price of $253,000, while Spokane's appreciation was 21 percent, to a median of $167,500. Still, Spokane's price increase equated to $29,000, while Seattle's was $47,000, hitting buyers harder in the pocketbook.
Crellin thinks the Seattle area's lower appreciation rate is simply a reflection of house prices so high here that they cut out less-affluent buyers, thus reducing demand somewhat.
As for Portland and Spokane's strong showings, both reflect prices pushed by strong demand and weak supply.
"There just isn't much on the market," Crellin said.
Almost 100 metro areas experienced higher appreciation than the historical average of 6.4 percent over the past year, the NAR said, and 69 recorded double-digit growth.
This past year's broad-based price increase is one of the largest the U.S. has seen since at least 1970, economist Stanley Duobinis told a recent gathering of John L. Scott Real Estate agents and local homebuilders.
Is that a signal that home values are at risk?
"It really depends on where you live," said Duobinis, president of Maryland-based Crystal Ball Economics. "Not since after World War II have house prices declined nationally, although I can give you instances of local downturns."
Those declines usually were caused by local job loss or overbuilding, two factors that aren't present here.
Rather, the Seattle area has several indicators that housing demand will continue strong, Duobinis said.
One is the lack of buildable land within the urban growth boundary.
Another is the strong job market, which attracts newcomers. Every 1.7 new jobs creates the need for another place to live, he said.
"Seattle is one area where you can start talking about restrictive growth — not just because of policy, but also because of geography," Duobinis said. "You can't create more land, and you're having increasing numbers of people coming in.
"Is this a recipe for disaster? No. But you are going to get some pretty strong price increases in the future."
In the near future, Duobinis expects the local market to cool somewhat as buyers react to rising mortgage rates.
Sales of existing homes will decline through 2007, he predicted.
Still, "the next two years will be better than anything in history — except the last two years," Duobinis said.
Elizabeth Rhodes: email@example.com