Amid the news of terrorism alerts, calls for war, and depressing economic reports, a beacon of hope shines forth from the real estate market. Thanks to interest rates that have hit a 40-year low, home sales and refinancing march on at a record pace. When I ask Glenn Crellin, director of the Washington Center for Real Estate Research (WCRER) in Pullman, if the national residential market continues to perform fairly well despite other weak economic conditions, he immediately corrects my tepid assessment.
"It's not performing fairly well," he says. "The real estate market nationwide is performing phenomenally well. We saw record home sales both nationwide and in Washington, and it's all about low interest rates. For households that are comfortable with their own continued employment, they're saying interest rates haven't been this low in 40 years, so now is the time to buy."
Indeed, home sales numbers are up all over the country. The National Association of Realtors announced last week that existing home sales in the U.S. during 2002 increased 8.6 percent over 2001. Activity in the local market followed national trends; Crellin reports 8,150 sales in Spokane County, an 8.4 percent increase over 2001, which was the previous record.
Often, when home sales activity reaches such a fever pitch, prices rise along with demand. But that has not been the case in the local market. The median price for homes sold in Spokane County during the fourth quarter of 2002 was $110,500, only 3.6 percent higher than the median a year ago. Statewide, prices are up 5.8 percent from last year; in King County, the values rose 6.5 percent in the same period. Calculating the median -- half of the homes sold for more and half sold for less -- for national existing-home prices generates a figure of $161,600 for the fourth quarter, 8.8 percent higher than a year earlier.
Although Spokane residential real estate has not increased in value a great deal over the past 12 months, there's still good news for both homeowners and would-be homeowners. Spokane County remains the most affordable real estate market in the state, according to Crellin, even for first-time home buyers.
The WCRER calculates two measures of affordability for each county in the state, comparing the county's median income with the median price of a home, while also factoring in interest rates and numerous other costs.
"The Housing Affordability Index is a measure that I developed back in 1982 when I was on staff at the National Association of Realtors," Crellin explains. The index in still used by the NAR. "It measures the ability of a middle-income family to afford a median or typical unit in the market." Crellin notes that the term "family" has a very specific definition in this calculation: "A family means two or more individuals related by blood, marriage, or adoption, so this measure excludes single-person households."
Several other assumptions are built into the index, Crellin explains. "We assume a down payment of 20 percent," he says, noting that the average down payment nationwide is closer to 25 percent. "We assume that the household is able to spend 25 percent of its gross income on just principal and interest, and we assume a 30-year loan at the prevailing interest rate, which was 6.11 percent in the fourth quarter of 2002."
In Spokane County during the fourth quarter, the affordability index sat at 205.7, the highest measure in the state. Crellin translates: "So, in Spokane, the average middle-income family has 205 percent of the income required to qualify to buy a median-priced unit in the market."
Nationally, the composite affordability index is 140.7; statewide, the rate is a very similar 144.2.
"It's noteworthy that Spokane has the highest affordability measure in the state," he says. "That indicates to me that the Spokane marketplace has undervalued real estate."
Because few first-time home buyers meet the assumptions embodied by the Housing Affordability Index, Crellin later adapted a new index with assumptions more typical of first-timers. Lower household income levels, lower down payments, lower-priced homes, and a mortgage insurance payment all get factored into the calculation for first-time buyers. Spokane's First-Time Buyer Affordability Index stood at 116.6 percent at the end of 2002, the third-highest score among Washington counties, meaning that a typical local first-time buyer would have 116 percent of the income needed to qualify to purchase a starter-priced home. Nationwide, the first-time buyer index stands at 81.3.
"Spokane is a very affordable market with respect to ownership housing," Crellin concludes.
The Washington Center for Real Estate Research was created in 1989 by the WSU Board of Regents to provide information to real estate licensees and consumers across the state. Funding for the WCRER comes from a $10 surcharge paid by real estate licensees for research; the Center contracts with the Washington Department of Licensing to provide the research services. Quarterly data on home sales and apartment vacancies is compiled and reported on the WCRER Web site. In addition, Crellin travels frequently around the state to present information to local associations of Realtors. For more information, visit the WCRER at www.cbe.wsu.edu/~wcrer or call 800-835-9683.