Eastside – A look at "affordable" housing

I need to take a look at “affordable housing” issues after a meeting I had this week on the subject, and in preparation for a meeting I have next week on the subject.  I’m primarily looking at Kirkland and comparing Kirkland to places people would move to from there.

While that is not the purpose of this post, this post will also give you some insight as to why there are “Bubble Blogs”.  Many of the young people who want to raise a family without moving to Tennessee, are impacted by the same factors I am raising in this post.  There was a time when I could (and did) tell them to buy condos and use the appreciation for downpayment on a home.  No longer the case in the near distant future.  Where are home prices going?  Well strip out exotic financing, including FHA 60% backend, and look at realistic financing, and you will immediately know what the “bubbleheads” already knew.  Prices have to come down considerably before a young family needing 3 bedrooms and 1,500 square feet can afford to live here.

Median incomes in the last census back in 2000 were $60,000 per household and $73,000 per family in Kirkland, but only 23% of households had children under 18 living with them.  The Powers That Be take this to mean they need more affordable housing for 1 and 2 person households, since that represents over 75% of the residents. I disagree. It is my contention that young people in condos move out of Kirkland once they have a child, because affordable homes for families are more prevalent elsewhere.  To me that means we need more housing for young people with children, otherwise you get overweighted in young professionals, wealthy empty nesters and “affordable housing” for lower earning singles.  That doesn’t diversify the base, and expand the number of households with children under 18 living in the household, up from 23%.

Rather than up the 2000 census incomes, I’m going to call median income $65,000 for a family, as in we want to attract that which we do not have.  Also, that number looks like the King County median and more appropriate for this study.  I’m going to use 4X annual income plus 20% down as the barometer for housing price and minimum 3 bedrooms and 1,500 sf. 

$65,000 times 4 equals a loan amount of $260,000 which is $325,000 with 20% down.  This is why the presidential candidates are incorrect when they say we have to get home values back UP.  They need to recognize that home values accelerated to the point were only Exotic Loans would make them attainable.  So a wish to shore up property values is like a wish for Exotic Loans to make a comeback.

Let’s do an FHA 31/43 ratio double check on that.  31% of Gross Monthly Income of $65,000 is a monthly payment of $1,680.  Lets back off $300 of that for taxes and insurance and call that payment 1,380 for principal and interest.  That gives us a loan amount of $230,000 plus 20% down is about $290,000.  So affordable housing for a family earning $65,000 would be priced at $290,000 to $325,000.

Now let’s look at property with at least 3 bedrooms and $1,500 square feet.  For this purpose I am using the Tax Records vs. the MLS. as I am looking for what exists vs. what is for sale or sold.  In the system I am using, the assessments for 2009 taxes are not in place, so I am using 1.17 times the assessment used for 2008 tax purposes.  That means we are looking for property in the County records assessed between $245,000 and $280,000 with 3 bedrooms and a minimum of 1,500 sf.

Kirkland 98033 comes up with 39 properties, many of which appear to be apartments at the same address.

Kirkland 98034 has 54 all centered in the same vicinity.

Bothell 98011 has 35

Kenmore has 64

Bellevue has 31

Redmond 98052 has 25

Duvall has 53

Monroe has 113

Bothell in Snohomish County vs. King has 76

Mill Creek has 34

Issaquah has 27

Sammamish has 20

Renton has over 1,000

Auburn has over 1,000

Kent has over 1,000

I don’t know how many over 1,000, because there is a pre-set max on the search function.  But you can readily see where a family making $65,000 a year working in Bellevue, Redmond or Kirkland  needs to go to get just 3 bedrooms and 1,500 sf of living space.  I didn’t put any bath requirments or lot size requirements or even separate condos out.  Just 3 bedrooms and 1,500 sf and look what your money doesn’t get you.

Seattle has over 1,000 of which

16 are in 98115

28 are in 98103

9 are in 98117

Shoreline has 170

So when you look at Joe Sixpack and his story, and wonder how he got in over his head, remember that very few homes or even condos exist for a family making $65,000 a year within a reasonable distance to where they are curently renting and working.  So before you blame Joe for his demise, take into consideration that he really didn’t have options available in the marketplace that would have made for a more conservative decision by his family.  This not based on “what is for sale” but “what exists”.

Areas that have housing that fits the $65,000 income, also have lower median incomes.

If the Powers That Be representing Affordable Housing concerns only target 1 and 2 person households, because that is the constituency, then they are doing nothing to solve the REAL problem of “Affordable Housing”.  We need more affordable households for 3 or more persons to impact the issue of “Affordable Housing.

If Kirkland only added 20 to 25 of these, they would be increasing affordable housing from 84 to 104 or 109, which would be a increasing affordable housing by 25%!  Adding more one and two bedroom units, or increasing the affordability of small one and two bedroom units, continues to force young families out of the demographic.

I was told “but the whole REGION has primarily 1 and 2 bedroom households” so that is why we are targeting that demographic.  I said look for WHY the region is primarily 1 and 2 bedroom households…and fix that why.

I need to look at a few more things in preparation for my meeting, if you don’t mind tagging along with me for a few more minutes.  I’m raising the assessed value to $280,000 -$375,000, which is like raising the sale price from $325,000 – $440,000 and I’m adding built since 1990 to see how the cities are progressing toward adding affordable housing.  It is my contention that Redmond via newer 3 bedroom townhomes is outpacing Kirkland.  I need to test my perception.

Kirkland 98033 – 104 (several of these are owned buy builders and developers.  Not sure what to make of that)

Kirkland 98034 – 53

Redmond 98052 – 147 (it is true that a lot of that is Rivertrail, which is where my perception comes from to some extent.  I need to research how that much land close to Downtown Redmond was available to build Rivertrail.  Wait a sec…no I don’t…it’s in a flood zone.

Belleuve – 194 (94 in 98005 – 67 in 98006 – 17 in 98008 – 15 in 98007 -3 in 98004

Seattle 98115 – 44

Seattle 98103 – 84

Seattle 98117 – 58

Shoreline – 219

Lynnwood – over 1,000

Bothell Snohomish – 588

Bothell King – 186

Issaquah – 669

Duvall – 428

Sammamish – 342

Kenmore – 173

Woodinville – 161

It’s about land values.  Thinking out of the box, if everyone on a 22,000 to 33,000 square foot lot was allowed to keep their house and shortplat off a couple of 5,000 sf parcels and put up two 1,700 square foot homes…

Thank you for letting me think out loud.  Your thoughts appreciated.

P.S. for Jillayne 🙂

Edmonds – 35 for the first group assessed at $245,000 to $280,000,  322 in the 2nd group built since 1990 and assessed at $280,000 to $375,000.  hmmm am I missing something by not looking under $245,000 assessed values with no age range?  23 in Edmonds,  Kirkland 62, 98052 – 120, Bellevue 43, Shoreline 68, Kenmore 51, Bothell King – 47, Duvall 27, Bothell Snohomish 37

15 Year Mortgage Too Pricey for Normal People

This morning, I read a commentary on seattlepi.com from columnist, Christy L. Thomas called Seattle too pricey for normal people.   It’s regarding her move from Boise and how she and her boyfriend are considering whether or not they can afford to buy what they would like to have in Seattle. 

The part that struck me, being a Mortgage Planner, is that they are selecting a 15 year fixed mortgage for their financing.   That avenue would be an expensive choice for anyone.   She mentions trying to find a home priced around $320,000 based on what she sold her Boise property.   I’m assuming that Christy and Tom (her boyfriend) are conservative folks since they’re looking at a 15 year fixed mortgage…so the following comparisons are based on putting approx. 20% down.   I’m also using the rates I quoted on Friday.

  • With a sales price of $320,000, their loan amount would be $256,000.  A mortgage amortized over 15 years would provide a principle and interest (P&I) payment of $2108.75
  • A mortgage amortized for 30 years with P&I of $2108.75 would provide a loan amount of $356,480 and an approx. sales price of $427,750.
  • Amortize a mortgage over 40 years with P&I of $2108.75, you will have a loan amount of $377,270 and an approx. sales price of $452,725.

Same payment with each scenario…except you’re able to buy $132,725 more home using a 40 year fixed over the 15 year fixed and  $107,750 more home with the 30 year fixed mortgage.    With an interest only product, such as a 30 year fixed rate with a 10 year interest only payment, the savings (or how much more home they could buy) would be even more substantial.

I hardly ever recommend 15 year fixed mortgages to my clients…unless they’re doctors or someone who makes so much money that their mortgage deduction is reduced and they all ready have all the investments they need.  

Even if Christy and Tom’s case where they want to “look around and buy the home where, if we’re lucky, we’ll grow old together”.    Why pay off your mortgage and lose one of your best income tax deductions?

Christy, Seattle is not too pricey for normal people…your 15 year fixed mortgage is.

Affordable Condos or Cheap Apartments — Who's choice is it?

I’m not typically one to go on about property owner’s rights vs government(s) ability to control code enforcement and reasonable use of property without infringing on others.  I think active involvement in zoning, environmental protection, etc are way too important for market forces only. But when the politicians start butting in without thinking about the unintended consequences it’s time to speak up.

For the last couple years we’ve all heard a lot of complaints about the shortage of affordable home ownership in and around Seattle. At the same time, it’s been a dismal market for landlords as the rental market has been very low. Given that situation, wouldn’t you do what a lot of apartment owners are doing — go condo. Better return for the owner and it increases the supply of available equity housing in the market.

From an article in the Seattle Times, Condo Wave leaves renters battered, apparently State Senator Ken Jacobson believes those evil property owners shouldn’t be allowed to put their real estate to it’s highest best use. Apparently we must stand up for low-rents, tenant rights over landlords and above all no more development. Let potential homeowners look farther away from the city to live — they can afford it. Ok, I’m exaggerating and ranting – but figure out the obvious. They’re not eliminating housing — just switching it to the ownership market.

If you live in Washington State, please be sure to check out the Seattle Times article and contact Senator Jacobson with your opinion on his proposed legislation. A hearing is scheduled for Thursday in the Senate Consumer Protection and Housing committee, so don’t wait.

The Five-Minute-a-Day Habit

[photopress:brazilsoccerhead_small.jpg,thumb,alignright]It’s been a while since we did a plug for David’s AHI blog. His blog is insightful, fun and for the price of only a few minutes a day, you can learn a lot! I don’t know how he does it, but he manages to write a quality article every day and they are almost always at the high level of today’s article on the relationsip between the World Cup, the world’s future, and affordable housing.

(You can learn more about David from this RCG interview!)

Keeping Real Estate Entertaining…

David A. Smith, founder of the Affordable Housing Institute, has a great blog that is loaded with articles that are both interesting and informative (is that possible?). In terms of readability, his posts are up there with grow-a-brain except David keeps more focused on real estate.

He posts on a wide variety of topics. Today he gives some lessons on how home owners can learn from haggling in third world contries in the Economics of Haggling. A few days ago he had an article (What destroyed your home first) where he relates the killing of Rasputin to whether or not insurance companies will pay to rebuild homes in New Orleans (read the article and it will make sense!).

All in all, David is a great writer, and if you’re interested in real estate, I highly recommend adding him to your reading list.