Home prices falling, affordability slightly up

PULLMAN – The late spring/early summer period is typically the busiest part of the year for the residential housing industry, but the sluggish market affecting home sales throughout the country was also reflected in Washington State, according to statistics prepared by the Washington Center for Real Estate Research at WSU.
Homes sold during the second quarter at an annual rate of 89,380 units statewide, sliding 8.5 percent below the sales rate in the first quarter and 31.7 percent below the same time last year. “Buyers see and hear stories about the collapse of the national housing market everywhere, and that makes them afraid to move forward with a purchase, especially as they are confronted with weaker job markets and surging prices for gasoline and food,” noted Glenn Crellin, WCRER director. The sales rate during the second quarter was the lowest in over 10 years.
Median prices
The median price home in Washington during the second quarter sold for $291,900. This price level was 7.8 percent below a year ago, the sharpest decline since WCRER began producing the statistics in 1994. This was the third consecutive quarter with year-to-year declines in median prices. The current median price is roughly the same as the median reported two years ago.
Housing markets are local, a point which was reinforced in the current statistics using the seasonally adjusted annual rate data that allows the identification of potential turning points. While sales declined compared to a year ago in 38 of Washington’s 39 counties, the market was stronger in the second quarter than in the first in eight counties, and unchanged in several others. While a single quarter does not represent a trend, it is the encouraging sign. The greatest improvements were in Okanogan and Adams counties where sales nearly doubled. Meanwhile, the sharpest quarter to quarter declines were in Wahkiakum and Skamania counties, two rural areas in southwest Washington where the sales rate declined more than 60 percent compared to the first quarter. As always, King County had the highest sales rate of 21,340 homes, while four counties recorded annualized sales rates less than 100 homes sold.
Median prices ranged from $111,000 in Adams County to $570,000 in San Juan County. Among the urban markets the range was somewhat less, from $153,100 in Yakima County to $450,000 in King County. In terms of price changes compared to a year ago, the median price declined by 10.4 percent in tiny Wahkiakum County comparing second quarter 2008 to a year earlier. At the other extreme, the median price in small Columbia County was 32.9 percent above a year ago. The volatility of price statistics in small markets is also apparent here as Wahkiakum and Columbia counties (both of which had sales rates of less than 100 homes annually) shifted positions compared to the first quarter report. 
Some counties higher
Despite the prevailing belief that all home prices are declining, a total of 14 Washington counties reported higher median prices than a year ago. Among the largest population centers the change in median prices ranged from a decline of 8.9 percent in Kitsap County to a jump of 5.3 percent in Chelan County (Wenatchee). It must be emphasized, however, that the change in median prices should not be referred to as an appreciation rate. “Those households willing to buy in this market have more choices and opportunities to negotiate deals than in recent periods. As a result, they may be getting more house without spending more money, suggesting price depreciation on individual homes is more severe than reported here,” Crellin indicated.
The future direction of housing prices may be indicated by comparing the inventory of homes available for sale to sales rates. When prices were surging two years ago there was a two months’ supply of homes on the market. Five to seven months is considered a balanced market where prices increase no more than the overall inflation rate. Supplies in excess of nine months are consistent with softening prices. The statewide supply as of the end of June was 11.1 months, suggesting prices will decline further in the months ahead, but these statistics can change quickly. “If sellers who do not need to sell withdraw their listings, or allow them to expire, balance could be restored soon,” Crellin noted. In most markets the inventory was highest for the most expensive homes.
Ability to buy
The final set of statistics released by WCRER measures of the ability of typical families to purchase typical homes, measured through the Housing Affordability Index. The statewide all-buyer index stood at 95.5 for the second quarter, the third consecutive increase in affordability after several quarters of decline. The index is constructed assuming lenders rely on traditional underwriting standards, consistent with current lending practices which are more restrictive than a year or two ago. This means that a median income family has about 95 percent of the income required to qualify for a conventional mortgage on a median price home. Jan Ellingson of Burlington, the 2008 President of Washington Realtors® emphasized, “While affordability was a bit better than during the first quarter, the improvement was modest. Much of the savings in prices was consumed by higher interest rates leaving buyers frustrated that they are not benefitting from price declines as they expected. With financial institutions facing increasing risks, rates are expected to rise and qualified buyers may find buying now makes sense, even if prices continue to decline for a few months.” The most affordable local housing market was in Benton County with an index of 171.7, while San Juan County continued to offer the least affordability with an index of 43.6. The index was greater than 100 in 26 Washington counties, suggesting that the typical family can afford to purchase the typical home in many parts of the state.
More critical to the long-term health of the housing market is the ability of potential first-time buyers to enter the ranks of homeowners. The companion first-time buyer affordability index assumes a lower purchase price, a lower income incorporating the fact that most higher-income households are already homeowners and the fact that single persons (who are excluded from the family income statistics) are more likely to be potential buyers. The statewide measure was 56.2, meaning that the typical would-be homebuyer has a little over half the income needed to qualify for a mortgage on the typical starter home.
Again the statewide measure reflected marginally improved affordability conditions compared to recent quarters. The range in first-time buyer affordability measures was from 111.1 in Adams County to 25.8 in San Juan County. The metropolitan range was from 103.1 in Benton County to 41.4 in King County. Significantly, both of those urban counties were less affordable than during the first quarter for first-time buyers.
See the second quarter 2008 Housing Market Snapshot by clicking here.
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 38 of Washington’s 39 counties.

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