The median price for the top 25% of all homes in Seattle is within striking distance of $1.8 Million Dollars! This market is going nuts, and the data supports that. SINCE JANUARY 2016 (3.5 Months ago) - The bottom quartile has increased in value 23.35%; the third quartile has increased 36.45%; the second quartile has increased 19.23%; and the top quartile has increased 12.19%. The top quartile, aka Seattle’s luxury homes, only increasing 12.19% seems disappointing given the other quartiles’ appreciation, but step back and let it sink in... That 12.19% growth, or $160,000 in appreciation took only 3.5 months. THREE AND A HALF MONTHS!!! There’s not a ton of people earning $640,000 per year in Seattle, but if you’re a homeowner in the top quartile, you’re doing quite well for yourself on your house appreciation alone.
Will the bubble burst? Probably not anytime soon. Generally, jumbo loans (the loan size needed to purchase in the top quartile) will allow up to 43% debt to income ratios. If the average software engineer is earning $130,000 per year with very little debt, that allows them spend about $4,500 per month on a mortgage. Now, pair that software engineer with a spouse. If that spouse adds a respectable $60,000 per year in income, that’s another $2,150 per month that couple can technically afford for their mortgage. How far does $4,500 + $2,150 = $6,650 go when it comes to mortgages? That’s about a $1.2m loan. Now use the software engineer’s stock options and savings as down payment, and we’re at $1.5 million for a purchase price. What I’m getting at here, is that you don’t have to be super obnoxiously rich to afford a really expensive home. THAT’S why Seattle’s housing market won’t burst anytime soon – because the wages some people are being paid more than support the prices homes are being purchased at. !
Today's blog courtesy of Kyle Bergquist, Guild Mortgage