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As costs rise, housing takes bigger bite out of paycheck

AFFORDABILITY • Income growth lags behind home prices in area

By todd murphy

The Portland Tribune, Jun 26, 2007, Updated Oct 30, 2009 (1 Reader comment)

Seth and Missy Ladygo are taking a break.

The Portland housing market has worn them down.

And turned the young married couple – at least turned Seth – a bit toward the philosophical.

Even if they could find a house in Portland that they barely might be able to afford, “Do we want to afford it?” asks Seth Ladygo, a 35-year-old computer programmer and consultant.

Does he want to work nonstop to be able to help make the mortgage – and then spend 35 or 40 percent, or more, of the couple’s income on the payments?

From inside their apartment just off Alberta Street in Northeast Portland, Seth Ladygo motions to the gathering boisterousness outside – in the late afternoon of the neighborhood’s popular Last Thursday Art Walk.

“If people are tied to their desk for 10 to 12 hours a day … they’re not going to be able to produce the culture which keeps this city as vibrant as it is,” he says.

Or go out to dinner, Missy Ladygo adds.

Seth and Missy Ladygo, a 31-year-old Freightliner office manager, can indulge in a bit of philosophy because they’ve stepped onto the sidelines for a while now, past their frustration of a year or two ago – when they were more actively searching for a Portland house they could afford. They simply got tired of seeing what little their maximum price – maybe $260,000, back then – would buy.

But the Portlanders who remain in full frustration mode – especially people in their 20s and 30s, or older people looking to buy their first Portland home – are asking many of the same questions that the Ladygos have asked.

Will they ever be able to buy a house in Portland?

Will they have to live with hourlong commutes from the suburbs, or in neighborhoods that are the antithesis of what they expected from living in Portland?

Might they have to leave the Portland area altogether?

And what does all of this mean for Portland – for its socioeconomic makeup, for its personality?

“If houses continue to outpace inflation, outpace income, who could afford to buy a house?” Seth Ladygo asks.

“And how much does that change the character of the city?”

Mortgage takes more and more

For people who bought a house in the Portland metro area five or seven or 10 or 20 years ago, those philosophical questions might be germane. Although for them – people whose home-based wealth has skyrocketed with house prices – the questions are much less desperate.

But for people who’ve moved here recently, or who have just begun searching for their first homes, every year has gotten more despairing than the year before.

The median price of a house in the Portland area increased 18 percent from 1997 to 2002 – to $177,500. But it has increased another 67 percent since then, to $297,000 in May this year for a house in the five Oregon counties in the region.

Meanwhile, median family income in the region has risen more conservatively – from $46,300 in 1997 to $63,800 this year for a family of four, according to estimates from the U.S. Department of Housing and Urban Development. And that median income number actually has moved down from the $65,800 it was in 2003.

All of that, along with recently rising interest rates, has made Portland area housing increasingly unaffordable for the average income earner.

One frequently used housing “affordability index” is based on the percentage of the median family income needed to pay for a mortgage on a median-priced house.

Five years ago, it took 19 percent of the median family income in the region to pay for the mortgage on a median-priced house. As of the first quarter of this year, it was 27 percent.

And while a cooling of the nationwide housing market during the last year has had some effect in the area – average prices have increased only 8 percent in the past 12 months – that doesn’t really change the equation for people like the Ladygos.

Their combined yearly income is just below the median Portland-area family income. A conservative loan officer would say a family with the median income of $63,800 would be eligible for a $210,000 mortgage loan.

Even assuming that that family could come up with a 20 percent down payment and the closing costs, that would allow them to buy a $262,000 house.

And that doesn’t buy much in the Alberta neighborhood the Ladygos love so much, where many of their friends live – and where their landlord has informed them she may sell their triplex, for a likely conversion to condominiums.

And it doesn’t buy much anyplace where they’d like to live in Portland – generally within three or four miles of downtown. Their geographic goals are partly driven by their not having cars. They bike or use public transit to get around.

It’s still cheaper than …

While this is little consolation to prospective first-time Portland-area homebuyers, it could be worse: They could be looking to buy a house in any other large West Coast city.

Not only are the housing prices much higher in other West Coast cities, so are the “affordability indexes.”

The median house price in Los Angeles was $589,000 in the first three months of this year, and it takes 62 percent of the local median family income of $56,500 to pay for that mortgage.

The median price in San Francisco was $748,100, and it takes 52 percent of the local median family income of $86,500 to pay the mortgage.

The median price in San Diego was $595,200. It takes 51 percent of the local median family income of $69,400 to pay for that mortgage.

“We are the low-cost location on the West Coast, but that’s sort of a dubious distinction,” says Jerry Johnson of Portland’s Johnson Gardner economic consulting firm.

The unsustainably high median prices in some of those cities have begun to decline in the last several months.

But most economists who watch the Portland market think it’s unlikely there will be much decline in median house prices here.

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