by Dr. Patrick Jones
“At least it’s not getting any worse!” That’s about the best we can currently say for the local market for single-family homes in Walla Walla.
This perspective on the local housing market comes via the Housing Affordability Index (HAI) for first-time homebuyers. Its value has been about the same for two years in Walla Walla. Specifically, its value has hovered around 50 since the second quarter of 2022. Trends indicator 5.1.3 makes this quite clear.
The index tracks the ratio of income to housing costs. In the numerator is the monthly income of a household, for the first-time buyer HAI assumed to be 70% of the area median household income. In the denominator is the monthly mortgage costs, implied by current interest rate in a 30-year mortgage for a house that is sold at 80% of the current median.
A value 100 or higher connotes affordability; below 100, an absence of affordability.
The most recent quarter in which the county’s HAI for 1st-time buyers was greater than 100 was the middle of 2018, when the value stood at approximately 106. Since then it has declined, and from the middle of 2020 to the middle of 2022, actually plunged to the levels of today.
A look at both sides of the affordability ratio gives us good clues about why the plunge has happened. Let’s first consider the denominator. In the middle of 2018, the median price for an existing home was about $216,000. Fast forward two years, to the middle of 2022: $448,000, or more than a doubling! Since then, as in the HAI values, it has largely remained in the low $400,000. This doubling is easily seen in Trends indicator 5.1.1.
In addition, the 30-year fixed mortgage rate between the middle of 2018 and 2022 climbed from 4.5% to 5.7%.
One obvious culprit for escalating housing prices is the pandemic. Construction of new homes slowed while demand stayed strong. And the supply of existing homes shrunk, if Walla Walla followed national trends.
Yet the population of older adults grew, both in absolute and relative terms. This is the group that has been largely responsible for overall population gain the county. Between 2019 and 2023, this age group (65+) added about 1,200 to its ranks. Many of these were likely existing residents moving along the population pyramid. But undoubtedly some (or more than some) were in-migrants to the county. See Trends indicator 0.1.3 for greater detail.
The numerator of the HAI doesn’t have a direct analog in the Trends set of indicators. But we do know the metro area (Columbia and Walla Walla Counties) median income. As can be seen in indicator 1.1.2, there hasn’t been too much recent growth in this important measure of economic well-being. In 2022, the most recent year for which estimates from Census are available, the median household income was $65,300. In 2019: $61,285. This implies a cumulative increase of a mere 7%.
How then can the HAI reverse course and move back toward a value of 100? This is likely a tall order: either mortgage costs will need to fall, or incomes rise – both dramatically. Or some combination of the two. For sure, incomes will increase over time, but the pace, if history is a guide, will be on the order or 3-5% per year.
On the other hand, it seems unlikely that mortgage costs will fall significantly. Housing prices would need to decline, not just stay the same. A decline has happened before, most recently during the Great Recession. But for the most part, that is not the norm. And/or mortgage interest rates would need to drop from the current rate of about 7% for a 30-year fixed contract to at least the range of 4-5%. That might be in the offing sometime, but likely not in the near future.
As a consequence, it’s a safe prediction that the HAI for first-time home buyers will likely stay stuck at a very low level for the foreseeable future. A work-around could be the bank of mom and dad. But for buyers of a certain age, that bank is no longer in business.