Median House Price vs. Median Income
In a recent Seattle Post-Intelligencer article, Reporter Aubrey Cohen quotes NAR Economist as saying that Seattle is undervalued…in comparison to other West Coast Cities.
A friend of mine pointed out that with the King County Median house price being $435,000 how can that be affordable. I started to look a little deeper; I wanted to know if the Median Income would allow for these homes to be considered affordable. Here is what I found out.
The median income for a household in the county was $53,157, and the median income for a family was $66,035. Males had a median income of $45,802 versus $34,321 for females. You can find out more at: Answers.com
Some of you may crunch the numbers and say see at 53K you cannot spend over half your monthly income on a mortgage payment, and I would strongly agree. But simple numbers don’t answer some key questions. For example, what is the percentage of households that rent vs. buy? What percent of the homes bought were upgraded homes. (Using the equity the household made over the last 3-5 years to upgrade.) But the question is not just whether the average household can afford a home; it is a question of how Seattle stacks up to other West Coast cities as far as afford ability and appeal. So let’s look at some comparisons.
Again on Answers.com it puts together a list of 100 of the highest income counties. These are rated at a per capita income. King County is ranked 51st at $29, 521. Let’s see how King County stacks up.
Let’s take one county with a lower income per capita. For instance Alameda County in the Oakland Area of California is a somewhat desirable place to live. Alameda County is 97th with a per capita income of $26,680. The median home price there is $540,500. Now take San Diego County is 253rd with a per capita income of $22,926. The media home price there is $435,000. Hmmmm same as Seattle, but with a lower affordability factor if you take the per capita income into consideration.
In conclusion, yes Seattle housing prices are up there, but how they compare as far as West Coast cities, I would suggest that they are very appealing. I think the strong diverse economy and the low unemployment rate lead to a great place to live. Not to mention sports & entertainment as well as outdoor activities that the surrounding area has to offer.
posted by RealtorDan at
2/11/2008 12:35:00 PM
1 Comments:
I agree Seattle is a great place. I think it may be a bit misleading to call Seattle undervalued. It might be more accurate to consider other West Coast cities overvalued and Seattle less overvalued.
It is also true that Seattle's diverse economy will likely weather an economic downturn better than most areas. It is also true that Seatle's real estate market is not suffering like Stockton, California or San Diego or Las Vegas.
It might be relevant to consider whether a median income can afford a median home. You would think the numbers would sort of match up. Perhaps it is real wages that are the problem, particularly in the middle class and below. Perhaps it is the pressures from costs of other necessities such as food, gasoline and health care that makes normal percentages a bit less valuable in assessing affordability.
The barriers to entry into the housing market are formidable at this time. Tighter credit, higher prices, basic commodity inflation, stagnant real wages (particularly on the lower end) all make home ownership a daunting prospect for an increasing number of people.
I received an email the other day that was an interview with Jeremy Grantham, Chief Investment Strategist, GMO, in Barrons. He notes that housing affordability has always ebbed and flowed with household income. Historically the ratio of affordability has been 2.8 times family income. Nationally it is now 3.9. Prices can come back to income or income can increase. He like everyone else seems to think prices will come back and they may be right. However, in the long run we would be far ahead of the game if real wages would move up significantly.
Commodity costs are not likely to relax given the growth of China and othe countries. There is very significant pressure on prices from world wide demand. In the end people simply need to be able to afford the costs. What I am suggesting will be difficult to accomplish so I can understand the idea that prices have to come tumbling down. They may a bit but I don't see 25% in this area like some do.
And I still think Seattle is a great place to be.
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