Given the significant increases in sale prices over the last couple of years, affordability in the Seattle-Eastside region is something we’ve been thinking about a lot. To that end, we’ve assembled a chart that graphs home ownership costs against common indicators. It also compares average monthly mortgage payments to average rents-which have been rising at even faster.
The Western Urban Consumer Price Index is a steady indicator of appreciation. When home prices are in line with this index, they are sustainable. When we climb above the appreciation trend line, we generally experience price correction or wage increases to maintain equilibrium. With the exception of the great recession, most price corrections in the Seattle region have been minimal as prices stagnate while wages and appreciation catch up.
Given the significant price escalation we’ve seen already this year, coupled with this historical data, today’s home buyers should be cautious in purchasing properties for flip, spec or short term investment right now. Certainly some opportunities may pan out, but the risk may be higher than many investors would prefer. Buyers purchasing for long term investment will likely still do quite well as low mortgage payments allow them to purchase far more than they could if rates were higher…and they’ll benefit from those low mortgage payments for the life of their mortgage.
This year, 30-year fixed mortgage interest rates are expected to rise to 4.4-4.9%. Home prices in core Seattle-Eastside neighborhoods could potentially rise another 8-10% this year (4-6% for all of King County). The Consumer Price Index and wages will likely also rise as our economy continues to move forward. But will they rise enough to stay above the home ownership trend line? That is the million dollar question. We could very well see a price correction if they don’t. Here’s a 5-year snapshot of appreciation by neighborhood to provide additional insight on how each location has performed during that time.
Ultimately, it comes down to doing what’s right for you and your family. We hope this provides valuable insight to help guide your home buying and selling decisions. As always, every home must be evaluated individually for its attributes, location and sustainability.