The term “affordable” can mean so many different things to so many different people. For some, affordability is harder to come by than others and the price range is a bit more stringent. Often times we make affordability about our income rather than about the home price compared to housing inventory. You see, affordability on the grander scale fluctuates in a market given how many houses there are on the market compared to the median home price. Affordability may be different from person to person and family to family, but all-around affordability is independent of any one person or group and is dependent solely on the market and economy.
Statistically speaking, the Portland area is at an interesting junction of household income and housing inventory. On paper, they are roughly in balance, although that is changing as prices continue to rise. The median gross household income in Multnomah County is about $54k, in Clackamas County about $67k, in Washington County about $63k, and in Clark County about $55k according to American Community Survey data.
By HUD definition, a homeowner is “burdened” if he or she pays more than 30% of the household’s gross monthly income for housing. By that definition, the maximum monthly housing cost for a median-income Multnomah County homeowner would be about $1,350. For a homeowner in Clackamas County it’s $1,675. For Washington County it’s $1,575. In Clark County it’s about $1,375. These housing costs include taxes and insurance, of course.
If we are going to with this scenario then we are going to assume a homebuyer makes a 20% down payment and takes out a 30-year fixed rate loan at 3.63%. If you accept all of these assumptions, here’s what you might consider the maximum “affordable” cost of a single-family house if you’re at the median income in the four-county area:
Of course, every case is different. Incomes vary, even from year to year within households given the instability in the job market. House prices rise and fall. Down payments may be smaller, even much smaller, which increases the amount a buyer must finance.
A 20% down payment on a $330k house ($66k) can be a real impediment for some buyers, especially those looking to buy for the first time. Many buyers have made their down payments with gifts or loans from relatives. It’s harder for those without generous family members, obviously, but mustering $66k can be daunting for anyone.
The biggest assumption of all is that it’s affordable to devote 30% of a family’s gross income to housing. The composition of households can change as babies are welcomed into the family while other family members move out or even relatives move in. Incomes fluctuate as people are fired or promoted.
For right now, though, Portland is in a sweet spot where the family with the median household income can affordable the median priced house. Will this be the case in 1 year, 5 years, or 10 years? That will depend on population trends, home construction, and the economy. For now, is Portland affordable? It would appear to be so.