by Dr. Patrick Jones
Trying to enter the home ownership world currently poses a severe challenge for residents of the greater Wenatchee area. The Trends adopts a measure developed by the Washington Center for Real Estate Research (WCRER) that clearly shows this. It is featured above and tracks a certain type of potential buyer. You might say it addresses the challenge of younger buyers.
Generally, the Housing Affordability Index (HAI) is a ratio. On top is income, here household income of a household presumed to be at 70% of the area median. In the bottom is the mortgage cost, based on current market conditions and a home that is 85% of the area median.
A key assumption is that a household does not spend more than 25% of its income on housing. With that rule, a value of the ratio at 100 indicates that the household is spending exactly 25%. If the ratio is below 100, it is spending more; if above 100 less than 25%. (This is a stringent standard; the federal threshold is typically set at 30%.)
What do local conditions currently show? In recently released data, WCRER shows the HAI to be less than 50, specifically 46 for the third quarter of this year. That is the highest value since the first quarter of 2022. However, the Q3 value still represents a dramatic decline from the start of the pandemic. In the second quarter of 2020, it was 81.
In recent years, the First-time Buyer HAI has never been at 100, or even close to it. This underscores the challenges facing those trying to become homeowners.
The same path has not been the case for the All-Buyer HAI, as one can observe in Trends indicator 6.3.2. The current value is a bit higher, but not by much, than the HAI for the First-Time Buyer. The All-Buyer HAI, however, shows in recent history that it stood over 100, specifically in 2019 and 2020.
The rapid decline of the HAI of both types of buyers since then likely reflects a residential real estate boomlet during the pandemic.
Unfortunately, the greater Wenatchee area enjoys the dubious distinction of sporting the lowest HAI for First-Time Buyers among all Eastern Washington metros, except for Whitman County. And that county is heavily influenced by a very low median household income, due to the presence of so many university students. The two metros with the highest First-Time HAI values are Walla Walla and the greater Tri Cities.
The causes for the low HAI value here could well lie in the area’s unique housing market. As Trends indicator 6.3.1 reveals, the median price for a resale home in the two counties has been over $500,000 for 30 months now. The rise of the median from pre-pandemic to now has been dramatic. In Q4 of 2019, for example, the median housing resale prices was $360,000. Two years later, it was $506,000!
The rise in median household income by 22%, while welcome, still doesn’t come close to the increase in the median resale house.
It could well be that the two-county housing market is strong influenced by the vacation home market. After all, homeownership in the two counties, as seen in Trends 6.1.1, is slightly higher than the national and state averages. But with the median home resale price greater than half a million dollars, it doesn’t seem likely that this relationship will stay.