"You won't know you've seen the bottom until you've missed it". That's what we have been telling homebuyers for the last few years. People come into open houses and tell us they are "waiting for prices to go lower, prices haven't bottomed yet". They said the same thing about interest rates, until recently when it is all but too obvious that interest rates bounced off their most likely bottom. That turn in the rates actually triggered a spike in activity as many buyers came off the fence and started writing contracts.
Actually neither bottom watcher has the right perspective, since the best time to buy involves both price and interest rates. If you are going to change homes, it is the intersection of low prices and low interest rates that represents the best opportunity for housing affordability. It is at this point when more people are in a position to afford homes at every income level.
We still are in the optimum record low-interet rate mortgage environment, at the same time that household incomes remain in a similar relative position. The NAR Housing Affordability Index is at an all-time high, ever since NAR began measuring affordability in 1970. The higher the index, the more favorable housing affordability becomes; 100 is defined as the point where a median income family has exactly enough income to afford a median-priced home with a 20 percent down payment. The index shows that with a down payment of 20 percent, a median-income family has 184.2 percent of the income required to purchase a median-priced home.
This means the typical family across the mainstream of America could afford a home costing about $315,000 (the national median home price). With mortgage rates expected to rise over the next year, the index will likely decline modestly, but NAR economists still expect 2011 to be the third best year on record for housing affordability.
The map below is color coded to represent our local market. The blue green and green areas indicate the degree to which housing here remains more expensive than the nation's housing in relation to the median incomes for our area from demographics sources. We lie somewhere in the 45-60% range of annual income necessary to pay for housing here, based on national figures available for mortgages on homes. There is a high correlation of wealth here that enables these homes to be held as owner occupied and not necessarily servicing mortgages as would be the norm in other zip codes in King County. Here we tend to focus more on historical price relationships to determine relative value, rather than the proportional cost of housing to total incomes as a determinant factor. For those interested in more in-depth information, please visit the site that was the source for this portion of the report.
