Affordability Crunch

Housing affordability in Douglas County has reached a 20-year low. For everyone who thought the recent hot market of 2020-2022 was unaffordable, it pales in comparison to the affordability situation of today. Surprisingly, housing was still relatively affordable during the recent "hot market" for local families earning the median household income of $52,000. This affordability was supported by the record-low average 30yr mortgage rates of 2.0-3.0%. In fact, affordability has been on average very decent in Douglas County for the past 20 yrs. But on Tuesday, August 22, average 30yr mortgage rates for highly qualified borrowers reached new highs of 7.49%. This is the highest average mortgage rate since about December of 2000. On a loan amount of $300,000 increasing the mortgage interest rate from 2.95% to 7.49% translates into monthly P&I mortgage payment change from $1,256.74 to $2,095.59.

In the same comparison, your monthly principal payments as a percentage of your total monthly payment decrease from $519.24 (41.32%) to $223.09 (10.65%). This means the majority of your higher payment goes towards additional interest and less towards principal.

The Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage on a typical home at the national and regional levels based on the most recent price and income data. A typical home is defined as the median-priced, existing single-family home for the market area. The typical family is defined as one earning the median family income as reported by the U.S. Bureau of the Census. The median household income for Douglas County is currently $52,000.

This index uses the value of 100 to represent the position of someone earning a population's median income, with values above 100 indicating that an item is more likely to be affordable and values below 100 indicating that an item is less affordable. Points below 100 indicate that a median family may struggle to qualify for a mortgage on a home in the area, while a value of 100 indicates that the typical family has exactly enough income to qualify.

Is it possible we will see affordability like 2011-2015 ever again? Perhaps not. Either mortgage interest rates must drop significantly, property values decrease, or the median household income must increase substantially.

On the surface this may seem discouraging, even hopeless for Buyers at every level. But what lessons can we learn from reviewing the historical data?

The biggest lesson is to realize that since 2003 the affordability index has averaged 119.73. Indeed, if we add property tax and insurance costs the index still averages 105.90. The conclusion is that the typical family earning the median household income in Douglas County has on average been able to afford the median priced home, and easily so.

The result for buyers should be not a matter of "timing the market" but rather making long-term financial and housing decisions that span decades instead of short-term speculative decisions that span months or a few years. Real estate is best played for the longterm.

Douglas County Market Update

Comparing 2023 to 2022 over the last 12 months in Douglas County, the average sale price has decreased -1.41% from $352,197 to $347,244.

In the same comparison, the median sale price has decreased by -0.20% from $315,625 to $315,000. Inventory increased to 2.9 months in July. Total market time decreased to 56 days.