Washington Home Sales Stabilize While Affordability Sags

PULLMAN, Wash.—The closing months of 2005 brought increasing home prices, higher mortgage rates, declining affordability and frequent media coverage of a “housing bubble” in Washington state. Those factors combined with unseasonably cold weather and high energy costs before and during the holiday period, slowed the pace of home sales to a 2.9 percent increase in the final quarter of the year, reported the Washington Center for Real Estate Research at Washington State University.

Glenn Crellin, WCRER director, said, “Despite the bad press, the number of home sales during the October through December period was higher than during the last quarter of 2004, but the small year-to-year increase suggests that some slowing of the market is underway.”

Markets reporting less activity than last year were more numerous in the fourth quarter, with 15 counties reporting fewer sales than in late 2004. The list includes some of the largest counties in the state – King, Clark, Kitsap, and Whatcom – as well as some smaller communities with traditionally more volatile sales levels.

Cowlitz County had the largest percentage increase in sales (38.5 percent) while Whitman County had the most striking decline (29.3 percent). Real estate professionals in some of the counties with less sales indicated the problem was a shortage of inventory available for sale. For full year 2005 home sales increased by 8.1 percent to a record 183,320 existing homes sold.

The residual strength of last year continued to be reflected in rapidly increasing prices. The statewide median soared to $275,700 during the fourth quarter, a level 19 percent above a year earlier. Adams County was the only area to report median prices below a year ago, and is the only market in the state still reporting a median price below $100,000. Double-digit price increases were seen in 29 counties. The highest median price was in San Juan County ($462,500). King, Snohomish and Jefferson counties reported medians in excess of $300,000. The statewide median price for full-year 2005 was $260,900, 16 percent higher than 2004.

“Limited listings available for sale and construction that has not kept pace with population growth combined to fan the flames of price increases as strong consumer demand prevailed throughout the year,“ said Terry Sullivan, 2006 president of Washington REALTORS® from Spokane County. “What is needed is a policy which encourages affordable construction rather than limiting the opportunities for new homes to be profitably constructed for middle income households.”

The Housing Affordability Index, which measures the ability of a middle income family (two or more persons related by blood, marriage or adoption) to afford the purchase of a median-price home using a 30-year mortgage at prevailing interest rates highlights the growing problem. In the fourth quarter the all-buyer index slipped below 100 for the first time since WCRER began preparing the statistic in 1994, registering 96. This means that a typical family has only 96 percent of the income required for the purchase of a median-price home. Actually purchasing the home will require a larger than average down payment or a lender willing to extend the usual underwriting standards. Buyers in King County and five other markets faced an index of below the statewide measure. At the other extreme, five counties had index values above 150, suggesting the typical family would not have much difficulty qualifying for a median price home in those mostly rural areas.

“Affordability declines are worrisome, but consistent with strong markets for the past 30 years,” said Crellin. “More troublesome is the inability to find affordable starter homes.” The first-time buyer affordability index for the fourth quarter stood at 55.8 percent, the third consecutive quarter of record low affordability since the Center has kept records. The typical first-time homebuyer could afford the typical starter home in only three counties during the third quarter, indicating affordability problems exist in all parts of the state. Among urban counties, only Benton County (Tri-Cities) registered an index above 100.

WCRER produces these statistics in partnership with the Washington REALTORS®. Each quarterly release is timed to coincide with news releases of existing home sales by state and median home prices by metropolitan area from the National Association of REALTORS®. Sales data is available for each county and median home prices and affordability are reported for 36 of Washington’s 39 counties.

The “Fourth Quarter 2005 Housing Market Snapshot” is available on the WCRER Web site at www.wcrer.wsu.edu.