Young adults starting out can’t buy houses in Washington (or in a lot of other places).
A Seattle Times article (here) of May 12, 2024, says two-thirds of Washington’s under-35 adults are renting, and in King County three-fourths are, many because they can’t afford starter homes.
The Times article says Seattle starter homes go for “three-quarters of a million dollars,” which requires a household income of $231,000 a year.
What the heck is going on?
Real estate prices vary a lot by area, an area’s desirability plays a role, and Seattle has always been a desirable (and expensive) location. Local incomes normally are the greatest determining factor of home pricing. Homes go to the highest bidders, and except for areas with a lot of outside money (e.g., ski resorts and retirement havens), that’ll generally be the people with the best-paying jobs in the local economy.
Seattle is an expensive market because the area has a lot of high-paying jobs. It’s a transportation, maritime, banking, legal, medical, and education hub, so the city and its suburbs are chockful of high-earning professionals. It’s home to companies like Microsoft and Amazon, and also has tens of thousands of well-paid Boeing workers.
Port crane operators and longshoremen, ship and tugboat captains, commercial fishermen, and airline pilots make a lot of money. People with ordinary jobs can’t compete against all that money.
Metropolitan housing markets typically are stratified, with mega-mansions and mansions at the top, waterfront and view properties next, then middle class homes, followed by working-class houses in older neighborhoods providing a supply of entry-level homes.
But with more would-be homeowners than homes, Seattle market’s has devolved into a brutal game of musical chairs, with middle-class earners taking the working-class homes, the merely affluent getting the middle-class homes, while the fancier homes are the province of the truly rich.
The problem for young buyers and those with average jobs isn’t confined to Seattle, it’s everywhere in the country, because America has a housing shortage.
This came about as a result of a cause-and-effect chain of events that began with GOP deregulation of the mortgage industry, which opened the way to “liar loans” and other lending abuses that led to millions of defaults and foreclosures (known as the “subprime mortgage crisis”), which led to a collapse in housing starts (not to mention the “Great Recession”).
In the aftermath of the housing crisis, residential construction nearly came to a halt while population growth continued. That’s how we ended up with a housing shortage. Home and apartment construction has resumed, but it will take years of homebuilding to close the gap between population and housing stock. The home shortage has created problems beyond the affordability crisis; it’s also a factor in the explosion of homelessness.
A couple other factors work against house shoppers trying to make the square peg of their income fit into the round hole of affordability. The Times says, “monthly mortgage payments [have grown] by 60% from recent interest rate hikes alone.” While mortgage rates have risen, they aren’t historically high; rather, the disappearance of recent years’ historically low mortgage rates puts today’s high home prices even farther out of reach for buyers with limited incomes.
Those low mortgage rates play a role in keeping homes off the market. Higher mortgage rates discourage moving, and people are staying put to keep their low-rate, low-payment mortgages. Baby boomers staying in their family-sized homes (see story here) is also helping keep the supply of listings low.
Today’s homebuyers face a perfect storm of housing shortage, low market supply, rising mortgage rates, and unaffordability. In theory it won’t last forever, because market distortions tend to be self-correction and markets usually come back into balance.
But I see a long-term problem for people with less education and ordinary jobs: The growing prevalence of high-paying jobs. While that sounds wonderful, it’s not for those lacking advanced degrees and high-level professional or technical skills. For America, it’s a crisis of riches; for the nation’s young families and working class, it’s a crisis with no solution in sight or easy answer.
Photo: This is what a Seattle millionaire’s home looks like. This plain 3 bedroom, 2 bath house listed in May 2024 for $1,025,000.