Washington Housing Market Surges while Affordability Declines

PULLMAN, Wash.—Washington’s existing single-family home sales remained robust in early 2005, surging to 36,120 homes sold during the first three months, a record level for the January-March period, reported the Washington Center for Real Estate Research at Washington State University.

Glenn Crellin, director of WCRER, said that “mortgage rates have remained in bargain territory despite repeated increases in the discount rates by the Fed, convincing local home buyers that it will be a long time before rates are this affordable again. In addition, they are concerned that continuing rapid increases in home prices will price their dream home beyond their reach for years to come if they don’t act now.”

Although the total number of homes sold during the first quarter was 6,000 fewer than during the ending quarter of 2004, it represented more homes than ever sold during the opening quarter of any year by a considerable margin, and represented a 12.7 percent increase compared to early 2004. Sales activity was more than double a year ago in two smaller counties (Wahkiakum and Whitman), and at least 20 percent ahead of last year in 14 additional counties. However, said Crellin, the number of homes sold during the first quarter actually declined compared to a year ago in seven markets. The largest of the seven was Whatcom County, which experienced a 7.8 percent drop in this category.

Spurred by the strong market, the median price for an existing home in the state jumped another 13.4 percent to a record $238,900. The highest local median was $407,500 in San Juan County, while the lowest was $85,900 in Okanogan County, one of only two markets remaining below $100,000 for the typical home. Among the metropolitan markets, the most expensive homes were in King County ($348,200 median) while the least costly were in Yakima ($120,800 median). Twenty-two counties reported price increases in excess of 10 percent compared to the first quarter of last year. Prices were at least modestly above the first quarter of last year in all 35 counties where data was available.

Jim Harris, 2005 president of Washington REALTORS® from Kitsap County said, “The demand for homes throughout the state continued to exceed the supply on the market, resulting in rapid price increases (and frequent multiple offer situations) in all parts of the state. Fortunately, the legislature was convinced not to make the situation worse with a significant increase in the real estate excise tax.”

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 to purchase a median price home using a 30-year mortgage at prevailing interest rates, illustrates the impact of rapidly increasing prices and slowly increasing incomes on the ability of the market to sustain its strength. Once again the Housing Affordability Index declined, falling to its lowest level since late 2000, registering 111.8. This means a typical family has an 11.8 percent income cushion for the purchase of a median price home, and buyers in four counties now face affordability conditions where the median income household would need to purchase a home below the median price or have a larger down payment.

“While this decline suggests future softness in the housing market, the current measures are typical of strong housing markets for the past 20 years,” Crellin said.  The last four years have been extraordinarily affordable. However, the challenges facing first-time buyers are increasingly severe. The first-time buyer affordability index for the first quarter stood at 64.9, its lowest level since 1997. This suggests homeownership rates in Washington may begin to decline in the months ahead. That decline would likely be associated with a modest reduction in overall home sales activity. The timing of any such downturn, however, is uncertain.

WCRER has produced these statistics in partnership with the Washington REALTORS® since early 1994. 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 35 of Washington’s 39 counties. The WCRER Web site, https://www.cbe.wsu.edu/%7Ewcrer/, has additional and historical information as well as a housing-market snapshot for the first quarter of 2005.