The housing market is increasingly closed to buyers earning less than the median household income. Perhaps the best measure of housing affordability is the real estate market itself. Although there are a variety of affordability measures, the experience of homebuyers is best reflected in current transactions data. The following chart shows the distribution of resale prices, in increments of 10 percent, as recorded in the Northwest Multiple Listing Service database for King County through mid-August of 1998. What is striking about these figures is the lack of market activity below the price affordable to a household earning at the median income level.
Interest rates have a powerful effect on measured affordability.
The current low interest rates mitigate the affect of recent price increases on affordability. Low interest rates, however, are a national phenomenon. Seattle's relative ranking among metropolitan areas suggests the magnitude of the problem. Housing and the Business Cycle. Recently escalating housing prices and rents mirror the pattern of the past two business cycles, during which employment and population growth exerted strong demand in a supply-constrained housing market.