Washington Housing Market Cools as Affordability Declines

PULLMAN, Wash. — The third quarter of most years sees the highest level of home sales activity as families attempt to move prior to the start of school, but not this year in Washington. While third quarter home sales across the state rose compared to the 2003 third quarter, they declined compared to the second 2004 quarter, according to statistics released today by the Washington Center for Real Estate Research at Washington State University.

“Continued low mortgage rates encourage home sales, but higher prices more than offset the advantage of low rates, meaning homes are becoming less affordable,” said Glenn Crellin, director of WCRER. National statistics have similarly indicated some market cooling during the late summer.

Statewide, third quarter home sales totaled 45,950 units, 4.2 percent higher than summer 2003, but roughly 3,000 units below the previous record quarter (second quarter 2004). Quarterly sales were above last year’s levels in 28 of Washington’s 39 counties and were up by at least 10 percent in 16 counties. Despite the “slowdown,” this represents the second highest total home sales on record, surpassed only by the second quarter in unit sales.

In terms of new residential construction, building permits were issued for 12,729 housing units in the third quarter, 9.1 percent above 2003 levels. Multifamily construction was especially strong, but single-family permits still increased 3.6 percent compared to last summer.

The median sales price for an existing home in Washington reached another record level ($230,000), 10.6 percent higher than this time last year. Half of all homes sold during the quarter were less expensive than this median, but with price increases much higher than inflation, it’s no surprise housing is becoming less affordable, Crellin said. Median prices ranged from $78,800 in rural Columbia County to $355,000 in the resort San Juan County market. Only three counties continued to report median prices below $100,000, while nine now have medians of at least $200,000.

Mike Flynn, 2004 president of the Washington Association of REALTORS® said, “The real estate market has twin challenges—affordability and inventory to sell. Most markets only have enough homes listed to satisfy current demand for two to three months—half of what we need for a stable market.”

The Housing Affordability Index reflects Flynn’s concerns. It measures the ability of a middle-income family (two or more persons related by blood, marriage or adoption) to afford to purchase a median price home using a 30-year mortgage at prevailing interest rates. The second quarter index slipped to 117.5, the lowest reading in four years. While the index suggests a typical family could still afford to purchase the median home with a 17 percent income cushion, a drop of nearly 15 points in the last year is significant, Crellin said. Only three counties (Jefferson, King and San Juan) recorded all buyer affordability measures below 100.

“First-time buyers are having an increasingly difficult time locating affordable housing,” Crellin said. Housing affordability for those would-be first-time buyers also declined to its lowest level since mid-2000, with an index value of 68.3. That indicates that the typical renter household looking to own a home has only about 68 percent of the income required to cover the mortgage payments on the typical starter home. First-time buyer affordability remained above 100 in only three metropolitan areas—the Tri-Cities, Lewiston, Idaho-Wash. (Asotin County), and Yakima.

WCRER and WAR have produced these statistics since early 1994, timing each quarterly release to coincide with wire 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 every county and median home prices and affordability are reported for 35 of Washington’s 39 counties.

Crellin posts the “Third Quarter 2004 Housing Market Snapshot” to the WCRER Web site, found at www.cbe.wsu.edu/%7Ewcrer/ .