The Housing Crisis in Port Angeles
In part, the explanation of what happened in Port Angeles looks a lot like the explanation of what happened in the housing market in the rest of the country. When the Great Recession hit and the market crashed, new construction crashed along with it. As long as new home values stayed depressed, it was hard for builders to build a home that they could make a profit on once it was completed and sold. Housing values had to recover for builders to start building homes again.
And they did, eventually. Port Angeles’ peak monthly median home sale price pre-Recession was not reached again until 2021. That is fourteen full years where the market remained lower than the pre-Recession high. Compare that with Seattle, whose median residential home sale price had fully recovered after just seven years.
Where building could start to recover as the market slowly rebounded, building was facing additional difficulties. During the pandemic, buying lumber was like day trading, where lumberyards would have to re-quote the lumber package on a daily basis and the price of a new-construction home could fluctuate $30k or more depending on when lumber was purchased. Money was cheap, but the cost of materials was rising rapidly and wait times were long because of supply chain issues. Builders looking to make a profit focused their efforts on the Puget Sound region, where they could make $400k in profit on a $300k build.
With money being cheap (interest rates at historic lows) and housing in Port Angeles looking “nearly free” to investors from the greater Seattle area and California, those looking for second homes, work remote spots, and vacation rentals started purchasing properties in PA and Clallam Counties. Until April 1, 2022 a second home could be purchased at the same interest rate as a primary residence, and with just 10% down, allowing investors to enter the market with little cash upfront.
Port Angeles was in the midst of the perfect storm. In 2017 when the City Council passed the new zoning code, the median residential home sale price in PA was $178,000. With the interest rates at the time (around 4.5%), this would have equated to roughly $1,140 per month in principal, interest, tax and insurance (PITI).
By 2019, the median residential home sale had risen to $265,000, and payments were near $1,500 per month (with 5% down). The median household income in Port Angeles is under $54k per year, according to Census data, and that hasn’t risen much. In 2017, the median family could easily afford a home at 5% down. In 2019, they still could, but it was getting harder.
By 2023, however, the median residential home sale has increased to $430,000 (October 2023) and incomes have barely budged. With interest rates close to 8%, monthly PITI is over $3,500 with 5% for many buyers. With a median income of $53,690, it would take nearly 80% of their pre-tax income to pay the mortgage each month.
Let’s do a reality check here, though. Working with first-time homebuyers in Seattle, when interest rates dropped there was a brief window of time where people who had previously been boxed out of the housing market could buy a home. Housing prices in Seattle had been high, for years, and the dip in interest rates changed the landscape. In Seattle, someone making median household income couldn’t buy a home between 2013 and 2020. But, in Port Angeles, someone making the median household income could buy a house into 2022 (at 5% down, spending half of their monthly income on their housing payment).
The housing crisis is newer here, and the change came abruptly. Since the City of PA completed it’s Housing Needs Assessment, the median residential home sale price has increased 56%, and the number of short-term rentals has tripled. Now, with interest rates near 8%, the cost of borrowing will likely slow building again. The glimmers of hope come in the strides that the City Council has made to encourage infill and affordable housing. More on that later.
