While at a national level the housing market continues to recover, a look at local markets reveals a recovery that is most prominent in high-income areas, while lower-income neighborhoods continue to struggle. ProTeck Valuation Services delves into this phenomenon in its latest Home Value Forecast, with a spotlight on the Seattle metro area.
"Seattle shows us how income and access to credit drives home values and why across the country we are seeing strong appreciation in wealthy areas but slower recovery in areas of lower income," said Tom O'Grady, CEO of ProTeck Valuation Services.
Seattle—and Washington in general—made a strong showing on the Home Value Forecast's list of top 10 core-based statistical areas (CBSAs) in October. Five of the top 10 CBSAs for the month are located in Washington with Seattle ranked No. 4.
Factors considered in rankings include sales and listing activity, prices, inventory, number of days on market, the ratio of sold-to-list prices, and foreclosure and REO activity.
ProTeck noted a census report that revealed a $5,000 increase in median household income in 2013 in Seattle as well as a Forbes Magazine article that listed Seattle as one of the best places for business. Amazon, Costco, Boeing, Microsoft, and Nordstrom all have a presence in Seattle, making for a strong job market.
However, the Seattle metro is not homogenous, and the good fortune revealed in these studies is not evenly distributed.
In fact, the Seattle Times found the $5,000 increase in household income is highly concentrated in the highest-income households. The top 20 percent of households gained about $15,000 in 2013. Meanwhile, the bottom 20 percent experienced no gain at all, while bringing in an average $12,974 annually.
The housing market follows a similar trend, according to ProTeck's research. In Bellevue, one of Seattle's high-income neighborhoods, homes have already regained most of the value lost during the housing crash. Homes are valued at just 1.29 percent below their pre-crash high, according to ProTeck.
However, in Auburn, a less wealthy neighborhood, home values continue to wallow about 20.60 percent below their pre-crash highs, according to ProTeck.
ProTeck attributes part of this discrepancy in recovery to the Consumer Financial Protection Bureau's Qualified Mortgage rule, saying the rule "has greatly restricted access to credit for those with limited money to put down and need to take on a greater ratio of debt relative to their income."
"Auburn is feeling the credit crunch, limiting demand to those few who can qualify and therefore, limiting home price appreciation," according to ProTeck.
However, there is hope on the horizon for neighborhoods like Auburn, according to O'Grady. "The good news is that federal housing regulators have signaled that change is on the way to loosen some lending standards making mortgages more accessible for individuals with less than stellar credit," he said.
Fannie Mae and Freddie Mac will begin accepting loans with 3 percent down payments instead of the current requirement of 5 percent.
ProTeck also pointed out that while markets in its top 10 list for the month have fewer than four months of inventory, markets at the bottom of the list have much higher inventory. Madison, Wisconsin, for example, has 24 months of inventory. Lower ranked markets also tend to have a much higher percentage of foreclosure sales.