Housing Affordability in Washington  

Washington State’s Housing Affordability Index   

May 8, 2024

Background 

The Housing Affordability Index is a Washington-based resource for understanding the extent to which county-level housing markets are providing a range of choices that are affordable – and thus, attainable – to the state’s workforce. 

Originally, the home building industry has always relied upon the National Association of Home Builders’ Priced-Out Report to communicate the health of local housing markets. With construction costs escalating at every rung of the housing development ladder, it’s probably unsurprising that nearly 77% of households in America cannot afford the median priced home. For each $1,000 added to the cost of constructing a home, it’s estimated that 465 households are priced-out of their ability to purchase a home. 

 

Executive Summary  

The impact of unaffordable housing is felt most acutely by low- and middle-income households, who often struggle to afford basic necessities because housing costs consume more than 30% of their monthly income. It’s not just important that our state provides housing units for everyone that lives here but it’s also important for ensuring an equitable economic landscape, as those who are unable to afford housing in desirable areas may be forced to move to less desirable locations or commute longer distances to work.  

In this study, we find that home ownership is unaffordable for 73.3% of Washington families, based on the median-priced home of $640,000 with a $128,000 down payment. With the statewide median income of $90,325, the typical household can expect to afford a home of $425,700. That leaves a gap of $214,300 between how much Washington households can afford versus the median home price. To afford the median priced home, households would have to make $151,500 (almost $61,175 more per household than they currently earn) or come up with a higher down payment. 

When looking at available inventory in the state of homes priced at or below $450,000 – selected as a realistic ‘starter home’ – only 3,592 homes were available as of May 8, 2024. The scarcity of inventory works alongside regulatory and lending hurdles to increase the final sales price of a home.

 

Methodological Approach, Assumptions, and Limitations 

To complete this study, we looked at two loan products: conventional (20% down payment required) and Federal Housing Administration (FHA) loans. While FHA loans have a lower barrier to entry because only 3.5% is required for a down payment, some households may not qualify for various factors. FHA loans may not be useful for households that have already purchased a home and are looking to relocate, don’t have an income threshold high enough, or are looking to purchase a secondary home. FHA loans may not be ideal, as Private Mortgage Insurance (PMI) is required for down payments less than 20%. Therefore, we have reported our findings utilizing conventional loan products rather than FHA. However, those findings are reported in the appendix. 

The data was gathered from publicly available sources including the United States Census Bureau, Redfin, and Zillow. After gathering data, we completed calculations for determining affordability based on the following data assumptions:  

  • Average credit score range for Washington consumers is 720-739 according to Experian.  
  • Home sales price by county as reported by Redfin’s Market Report – this report utilizes annual data for 2023.
  • Statewide property tax average of 0.87% in 2023 as reported by Rocket Mortgage. Homes assessed at higher than the median home value will be less affordable to buyers and some counties may have an effective tax rate that is higher than the 0.87% average. 
  • Interest rate is pulled at time of the index update – February 27, 2024 provided an interest rate of 7.7% for conventional loans per Freddie Mac.
  • Monthly debt payments vary significantly from household to household. Therefore, we did not include debt within our assumptions. Most households do have some form of debt so it’s possible the affordability figures illustrated are low.
  • For homeowners’ insurance, we utilized NerdWallet‘s reported monthly average for Washington, $1,446. 
  • Homeowners’ association (HOA) fees vary by household and for purposes of this report, we did not include this fee in the modeling. However, it’s important to note that HOA fees can impact a buyer’s ability to qualify for a mortgage.

Utilizing these assumptions, even though they’re not free from limitations, help us illustrate the affordability landscape in Washington and in each county.

 

Results

In the Housing Affordability Index table in the proceeding pages, you will find crucial information useful for understanding the health of the state’s housing market. This information, along with the variables that comprise the index, can be found in the appendix as well. For now, we will turn the discussion to key findings since our last update February 2024.

It appears income gains and a cooling housing market are making affordability somewhat better for buyers able to go the conventional mortgage route. Our report suggests 73.3% of Washington families can afford a median-priced home of $640,000 but it requires a $128,000 down payment. To further understand how many Washington households would have liquid assets of $128,000 or more, we turned to The Federal Reserve’s Survey of Consumer Finances. According to the survey, the median savings account balance for renters was $7,300 in 2022. Further, the report states “increases in income were experienced across the income distribution but were largest at the top, consistent with some increase in income inequality over this period.” In following The Federal Reserve Board’s logic, a majority of households would not have experienced large enough income gains to adequately save $128,000 or more. Instead, the households with enough liquid assets to afford to purchase the median priced home in Washington are those whom are already homeowners – assuming the sale of their home. To illustrate, the median net worth of homeowners was approximately $295,500. 

In conclusion, it’s actually a much larger percentage of Washington households that cannot afford the median-priced home. Because FHA loans are a bit easier to qualify for (assuming one has never owned a home before) and the down payment required is much smaller (3.5% vs. 20%), the income needed to qualify would thus be higher. For example, to afford the state median-priced home of $640,000, the household would need to earn $182,700 (have no debt, $22,400 down payment, and have a good credit score of 700-719). Given this, we estimate only 18.2% of Washington families would be able to afford the median-priced home. As a result, the state’s housing market is unaffordable for 81.8% of households.

 

Washington State

  • Median Income: $90,325
  • Max Purchase Price Budget: $425,700
  • Median Home Sales Price: $640,000
  • Income Needed to Afford Median Priced Home: $151,500
  • Down Payment Needed: $128,000
  • Monthly Payment: $3,998
  • Payment (as percentage of income): 53.12%
  • Percentage of Households CAN Afford – Conventional: 26.7%
  • Percentage of Households that CANNOT Afford – Conventional: 73.3%
  • Active Listings on Zillow under $450k: 3,592 homes (excludes manufactured and 55+ communities)

 

Policy Implications and Recommendations  

While many of the variables that make up the housing market are largely out of the state and local governments’ control, there are a number of variables we can control with logical public policy to ensure homeownership opportunities can persist for generations to come.  

Restore Access to New Construction Financing

Our country is in one of the toughest real estate lending environments in recent times. The failures of three banks in 2022-2023 caused the financial industry to tighten lending standards to reduce risk. In some instances, financial institutions have vacated the new construction loan product offering altogether. While private lenders have helped to fill some gaps in accessibility to financing projects, it's not enough to help small and medium-sized builders across the state continue to build much needed housing units. While there has been an emphasis in pumping money into low-income (government subsidized) housing construction, the private market is left to figure out how to navigate a drought in lending for new construction projects. If even 10% of the $44 million Housing Trust Fund ($4.4 million) went to backing new construction loans for private builders developing through local and regional banks, it would help spur more development of lots and housing units at a lower cost, and ultimately produce a more affordable product for homebuyers. Further, it would allow Washington-owned private companies to better compete with large (and oftentimes national) builders and developers who have the large sums of hard cash available for developing land and building new housing.

Funding for Workforce Housing  

The Growth Management Act (GMA) mandates counties plan for housing for all levels of the economic ladder. Further, it defines workforce housing as housing units that are affordable to households earning between 80% to 120% of AMI. There are some programs that service households earning up to 80% but few, if any, programs exist for households that earn between the AMI levels of 80% and 120%. Expanding down payment assistance to those making higher thresholds of AMI will be crucial for keeping the American Dream of homeownership alive.  

Regulatory Reform 

  1. The easiest solution to our state’s housing underproduction quandary is reforming the GMA. Various housing policy scholars and academics have concluded that state growth management acts are responsible for about half the cost of added costs to home prices since their inception. Perhaps unsurprising due to the artificial – and sometimes arbitrary – constriction of land.  
  2. A re-examination of some building codes that don’t impact the safety or wellness of occupant(s) is necessary. Codes that disrupt the supply chain and add significant cost to the end-user (home buyer or renter) but do not improve the life safety or personal health of the occupant(s) should be questioned as to their appropriateness in being placed in the code instead of in legislation.   
  3. Developing single- and multi-family housing units is a risky business, full of uncertainty and unforeseen obstacles. Any process improvements from the state and local governments at each area of interaction between the government and project owner will be important to creating a more predictable building environment. More predictability will bring shorter construction timelines and reduce costs for the buyer or renter.  

 

Sources

2024. Horymski, C. Experian Research. “What Is the Average Credit Score in the US?” Accessed at https://www.experian.com/blogs/ask-experian/what-is-the-average-credit-score-in-the-u-s/

2024. Redfin. Housing Market Report [Each County]. Accessed at https://www.redfin.com/state/Washington/housing-market 

2024. Rocket Mortgage. "Property Taxes By State: A Comparative Look At The Highest To Lowest States." Accessed at https://www.rocketmortgage.com/learn/property-taxes-by-state

2024. NerdWallet. "How much does homeowners insurance cost in Washington?" Accessed at https://www.nerdwallet.com/article/insurance/homeowners-insurance-washington-wa

2024. Zillow. Active Listings for Washington State. Accessed at zillow.com

2023. United States Census Bureau. "Income in the Last 12 Months" (S1901). Accessed at https://data.census.gov/table/ACSST5Y2022.S1901?q=income%20distribution%20tables%20washington&g=040XX00US53$0500000_050XX00US53001&moe=true&tid=ACSST1Y2022.S1901

2023. The Federal Reserve Board. Survey of Consumer Finances. Accessed at https://www.federalreserve.gov/econres/scfindex.htm

2023. CoStar. "After Bank Meltdowns, Real Estate Lending Gets Even Tighter." Accessed at https://www.costar.com/article/1169637255/after-bank-meltdowns-real-estate-lending-gets-even-tighter

2023. The Wall Street Journal. "New Lending by Mortgage REITs Has Dried Up." Accessed at https://www.wsj.com/articles/new-lending-by-mortgage-reits-has-dried-up-49551878

 

 

 

Updated: May 8, 2024

Prepared by Andrea Smith, MPA

Copyright 2024 Washington Center for Housing Studies. All Rights Reserved. No part of this material or any research report may be copied, photocopied, or duplicated in any form by any means or redistributed without prior written consent from the author and/or funding authority.

Disclaimer

The content in this report is intended for informational purposes only. The information contained in this report may not constitute the most up-to-date economic, housing, or other information, nor does it represent a complete assessment of the housing market. This report does not constitute any recommendation or solicitation to any person to enter into any transaction or to adopt any investment strategy. Any business or investment decisions should not be based purely on the information presented in this report. Readers are encouraged to seek independent professional investment, legal, and/or tax advice. All liability with respect to actions taken or not taken based on the contents of this report are hereby expressly disclaimed. The content is provided "as is;" no representations are made that the content is error-free.

Appendix