Much recent news has focused on the economic slowdown. 2nd quarter GDP fell to an annual growth rate of 2.4%. With concerns about high unemployment and high government debt, government economists are weighing their options. The media have reported that economists predict a gloomier national housing market. July closed sales in Kitsap County appear to have fallen significantly (perhaps because of the rush to complete sales by the end of June), while July pending sales appear to have held fairly steady.
The Washington Center for Real Estate Research provides local affordability calculations that we can use to check on housing affordability using current median prices and interest rates. We’ve recently updated the income and 1st time buyer assumptions for this comparison to conform with current methods at WCRER. These updated data and calculations show not only that affordability has suffered because median household incomes have fallen the past few years, but also that affordability has not yet returned to where it was at turn of the century. Note that these calculations only compare the affordability of standard conventional loans. During the era of zero down subprime lending, other products with adjustable interest rates, interest only, or option ARM loans were used to qualify buyers for higher loans. History has shown that many of these were ultimately unaffordable. We assume that a buyer making the median family income puts 20% down on the median priced home and obtains a 30 year fixed rate mortgage. We assume that a first time buyer making 70% of the median income puts 10% down on a house priced at 85% of the median and obtains a 30 year fixed rate mortgage with mortgage insurance. We assume that both buyers can afford to spend a maximum of 25% of their monthly income on the principal plus interest of the loan. Using the annual averages of median price, median income, and average annual 30 year fixed interest rate since 2001, we plot an affordability index equal to the maximum affordable payment divided by the actual payment. When the index is greater than 1, the loan is affordable to the typical buyer. When it is less than 1 some buyers cannot afford to purchase. Our numbers for 2010 are estimates using the latest monthly data for median prices, interest rates, and median income.
The interest rate for a typical 30 year fixed rate conforming loan has fallen to about 4.59%, a record low reflecting investment in US Treasuries as a safe haven. The June median closed sale price fell about 2% from May to $239,000, further enhancing affordability. Rates have been expected to rise at some point in the coming year, with some experts predicting they'll reach 6% by the end of 2010. However, fear of a European sovereign default and other signs of continued economic weakness may result in a longer period of low US Treasury and mortgage rates. Keep in mind that median prices can be deceptive and that the bulk of sales are concentrated below $400,000, with considerably fewer than normal in the higher price ranges.
The affordability index improved to 1.23 in July from 1.19 in June. First time buyer affordability also improved to .82 from .76 in June. Below is a graph of the year-to-year changes in affordability and a second graph showing month-to-month affordability progress over the past year.
| Year |
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
| Annual Average interest rate |
5.84 |
5.87 |
6.41 |
6.34 |
5.80 |
5.03 |
4.59 |
| Median Income |
$54467 |
$58464 |
$61786 |
$60,668 |
$59135 |
$57724 |
$57724 |
| Median Price |
$206900 |
$250000 |
$275000 |
$290343 |
$265000 |
$244499 |
$239000 |
| Monthly payment |
$975 |
$1182 |
$1378 |
$1443 |
$1244 |
$1054 |
$979 |
| Affordable payment |
$1135 |
$1218 |
$1287 |
$1264 |
$1232 |
$1203 |
$1203 |
| Affordability Index |
1.16 |
1.03 |
0.93 |
0.88 |
0.99 |
1.14 |
1.23 |
| 1st time buyer payment |
$1002 |
$1214 |
$1408 |
$1478 |
$1277 |
$1089 |
$1031 |
| 1st time buyer affordable payment |
$794 |
$853 |
$901 |
$885 |
$862 |
$842 |
$842 |
| 1st time buyer affordability index |
0.79 |
0.70 |
0.64 |
0.60 |
0.68 |
0.77 |
0.82 |
July's APR is 4.686% on a 30-Year and 4.195% on a 15-Year, both conforming. June's rates were 4.812% on a 30-Year and 4.195% on a 15-Year, both conforming. If you qualify for FHA, VA, or USDA loans , these programs have are attractive for low downpayment buyers. The conventional and FHA loan limits remain at $475,000 in Kitsap County, which has helped sales of higher priced homes. The VA loan lender imposed limit is back to $417,000. The homebuyer tax credit was reworked last year to give some incentive to move up buyers as well as first time buyers. A typical 30 year fixed jumbo APR (with total costs of the loan, not just the rate factored in) is 5.264% on one major bank web site - down from 5.643% last month. You should also check with local credit unions and savings and loans for jumbo loan rates. To check the daily rate you can contact your lender or preview web sites such as this one - http://bankrate.com/.
