Housing affordability is dropping in state

Home sales and prices reached record highs in Washington in 2004, and the cost of homes is getting so high that many people are being priced out of the market, a new study showed Tuesday.

Though the affordability issue is most dramatic on the west side of the state, home prices in Spokane County are increasing rapidly as well.

While it may not be an issue for billionaires like Bill Gates and Paul Allen, money is becoming more of a barrier to home ownership in Washington, according to the report from the Washington Center for Real Estate Research at Washington State University.

“Affordability is going down, there is no question about it,” said Glenn Crellin, director of the center in Pullman. “When you’ve got prices rising as rapidly as they are … it’s hard for incomes to keep up that increase.”

The center’s Housing Affordability Index, which measures the ability of a middle-income family to purchase a median-price home using a 30-year mortgage at prevailing interest rates, slipped in the fourth quarter to 116.9 statewide.

That was a 17.5 point drop in the past year and the lowest reading since 2000, the report said.

A score of 100 means a typical family makes enough to buy the median house.

When the index is below 100, even repeat buyers face affordability constraints. King County, the state’s largest, has remained below 100 for the past two quarters, the report said.

In the fourth quarter, the affordability index was 97.8 in King County, 85.6 in Jefferson County, 66.9 in San Juan County and 98.1 in Whatcom County. Spokane’s index was 169.2, but a year ago it was 199.5, Crellin said.

“So it dropped 30 points too,” Crellin said. “As good as it is, it was better a year ago.”

The median price of a home in Spokane County was up 14.5 percent compared with the fourth quarter of 2003.

“We’re looking at the same conditions. Very strong activity, driven by low interest rates, driven by fear that prices are jumping so rapidly that if potential buyers don’t move quickly they’re going to be priced out of the market,” Crellin said. “As a result, prices are going up rapidly.”

First-time buyers are having an especially hard time, he said.

Housing affordability for would-be first-time buyers also declined to its lowest level since mid-2000, with a statewide index value of 67.9. This means the typical renter looking to buy has only about two-thirds of the income required to cover mortgage payments on a typical starter home.

First-time buyer affordability was above 100 in only seven counties, primarily in rural areas, the report found.

In sales of existing homes, a record of 169,560 were sold in 2004, the report said. That was 8 percent above the previous record set the year before.

The improving state economy, plus low interest rates, fueled the sales, the report said.

The median price of $225,000 in 2004 was an increase of 10.4 percent compared with a year earlier. Every county in the state reported higher median prices in 2004 than in 2003.

Asked how long housing appreciation could continue to outstrip income growth, Crellin noted that only a small number of the more than 1 million homes are sold in the state each year. That creates competition for scarce homes, especially as interest rates remain low, and bids up prices, he said.

Crellin also noted that even the hot Seattle market has median prices well below those in coastal areas of California, where median prices top $500,000.

“That makes the $300,000 in Seattle seem paltry,” Crellin said.

He predicted housing prices would continue to rise and affordability would drop in the next year.

In the fourth quarter of 2004, 42,500 existing homes were sold, a record for the October-December period, the report found. The fourth-quarter median selling price ranged from $81,400 in Columbia County to $337,000 in San Juan County. Only Grant County reported a quarterly median below a year earlier.

Among metropolitan population centers, the greatest increase in numbers of homes sold was 25.5 percent in Wenatchee, followed by 20.6 percent in Spokane. Yakima reported a 1.1 percent fourth-quarter decline.

In terms of new residential construction, building permits during the fourth quarter totaled 11,375 units statewide, an increase of 31.4 percent compared with one year ago.

The center produces the statistics in partnership with the Washington Association of Realtors.

Staff writer Alison Boggs and the Associated Press contributed to this report.