When I first started in the real estate industry in the 1970s, I was told that buyers could typically qualify to purchase a home that was approximately two and a half times their annual income. In 1970 the median home price in Flathead County was around $14,200 and the median household income was around $7,500, therefore the housing multiplier was 1.9 times income. In 1983, the median home price was $47,500 and the median household income was around $20,509 with a housing multiplier of 2.3, then stayed around 2.5 until 1992.
This week’s graph shows how this income multiplier has changed over the years, reaching a high in 2007 with the median home price equaling 5.5 times the median household income in Flathead County. Nationally, it reached a high of 4.8 in 2005 and the current national median is around 3.8 times national median income.
In Flathead County, this multiplier dropped to four times the median income in 2012, but is now over five.
Mortgage interest rates are shown on the bar graph and illustrate how the drop in rates has contributed to the increasing income multiplier. One of the basic factors of value is “Effective Purchasing Power.” A 1 percent drop in the mortgage interest rate increases the home purchasing power by approximately 10 percent. With current mortgage rates below 4 percent, the home purchasing power is the highest it has ever been, which increases demand and does contribute to increasing home prices.
Note: The last median income estimates from the U.S. Census are for 2014. This graph uses the 2015 and 2016 median home price and the multiplier is calculated using the 2014 median income for both the national and Flathead County multiplier in the last two years.
In 1981, Jim started Kelley Appraisal in Kalispell and has since built an extensive database of economic and real estate-related data on northwestern Montana. Over the last several years, he has published annual reports on the Flathead Real Estate Market and been a guest speaker on numerous occasions for various groups in the Flathead.