Seattle-area homebuyers need to earn $142K to afford starter home

SEATTLE – Despite the cooling housing market, Seattle-area buyers now need to earn more money than a year ago to afford a starter home – typically priced in the low to mid-$500,000s.

Seattle-area households need to make nearly $142,000 a year to afford a typical first home in the region, according to an analysis from Redfin. That’s an increase of 4% from last year, and well above King County’s median household income of about $106,000.

As buyers need to earn more to buy a modest home, “it just seems like the door into homeownership is shutting in a lot of places,” said Redfin Chief Economist Daryl Fairweather.

The income needed to afford a starter home in the Seattle area climbed even as the price of a starter home dipped about 6%. That’s because prices haven’t fallen enough to offset higher mortgage rates. The average rate on a 30-year mortgage was nearly 7% in mid-June, up from 6% a year earlier and 3% in 2021, according to Freddie Mac.

Demand is also recovering for the most affordable homes, which is likely to drive up prices for those properties, Fairweather said.

“People who (are) priced out of the most expensive homes by high interest rates tighten their belts a bit, and there’s an increased demand for starter homes,” she said.

To define starter homes, Redfin considered the most affordable homes, but not those priced in the bottom 5%. In the Seattle metro area, covering King and Snohomish counties, those were homes with a median sale price of $535,000 between April and June.

That median price would require a monthly mortgage payment of $3,545, according to Redfin’s analysis, assuming a 20% down payment and costs for interest, taxes and insurance. The report uses a common definition of affordability: spending no more than 30% of household income on housing payments.

Seattle ranked seventh among 50 major metro areas for the most income necessary to afford a starter home. Every market where it costs more is located in California, including the top two, San Jose and San Francisco, where buyers need to make $245,000 and $241,000, respectively. Conversely, homebuyers need to make just $26,000 in Pittsburgh and $49,000 in Chicago.

“There are still a lot of places in the United States where you can afford a home on a middle-class budget or middle-class income,” Fairweather said, “but Seattle is not one of those places.”

Many more affordable markets saw a bigger year-over-year jump in the income needed to afford a starter home. Miami, for example, saw a 25% jump in the income needed, to about $79,500.

For first-time buyers shopping for a starter home in the Seattle area, income isn’t the only challenge.

Even for Seattle-area buyers who can swing the $142,000 income – say, a couple each making around $71,000 – there are other challenges.

Saving a 20% down payment ($107,000 on a $535,000 house) can be a huge hurdle. Buying a house with less money down is possible, sometimes with the help of government programs for first-time homebuyers, but that can mean a higher monthly payment.

Other costs, from groceries to student loan debt and child care, squeeze budgets further in the Seattle area. And for many buyers, the very concept of the starter home may feel like an endangered species.

There are fewer homes for sale of all types in the Seattle area than in recent years. In King and Snohomish counties, about 3,500 total homes hit the market for sale in June, down 37% from the same time five years ago, according to the Northwest Multiple Listing Service.

The number of starter homes listed for sale in King and Snohomish counties fell 42% from a year ago, according to Redfin.

Many would-be sellers are holding onto their current homes because they’re locked into low rates available in recent years, reducing the supply of houses for sale. A recent Zillow survey found that homeowners with rates below 5% were more likely to say they planned to hold onto their home, rather than selling it.

“So that’s the first thing: There’s just not that many homes out there,” said Mason Virant, associate director at the Washington Center for Real Estate Research at the University of Washington.

An affordability index from the center illustrates the challenges facing first-time buyers: A 100 score on the index means a family making a moderate income for their county (70% of the county’s median income) can qualify for a mortgage on a modest house (costing 85% of the county’s median home price).

King County ranked among the least affordable counties in the state for first-time buyers, with a value of 40 in late 2022, the latest data available. Snohomish and Pierce counties also scored well below 100: 47 and 53, respectively.

That measure assumes a 10% down payment, mortgage insurance and that the household spends no more than 25% of gross income on its mortgage payment.

“Something’s got to give, or only the ultrawealthy are going to be able to afford homes,” Virant said.

Experts say allowing more housing construction, particularly more diverse types of housing, could boost the supply of more affordable town homes, condos and other starter-home options.

State lawmakers this year passed a bill to allow duplexes, town homes and backyard cottages in many areas of the state previously limited to detached single-family homes, but it remains to be seen just how much – and how soon – those changes may boost the number of homes for sale.