Why I Built SHAM: 35 Years of Watching Buyers Decide

In 2006, I was managing a branch for Countrywide — later Bank of America — when the customers started coming in.

They'd arrive with their loan documents, universally upset and generally angry. Occasionally threatening physical violence, threatening to vandalize my office, my car. The payments on their Option ARM loans were resetting. The 1% payment rate they'd been making — the minimum payment that didn't even cover the interest, the one that let their loan balance grow larger every month — was adjusting to the fully indexed rate. Their $1,800 payment was becoming $3,200. Or $3,800. Or worse.

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"The loan officer promised me this was fixed at 1%," they'd say.

It wasn't. It was never fixed at 1%. The loan documents said exactly what the loan was — an adjustable-rate mortgage with a minimum payment option that created negative amortization. The terms were disclosed. Legally, everything was in order.

But the buyer had heard "your payment is $1,800" and made a purchasing decision based on that number. The rest of the paperwork was noise. The payment was the decision.

The Observation That Wouldn't Go Away

I've been in the mortgage business for 35 years. I've sat across the table from first-time buyers, move-up buyers, downsizers, investors, and people who had no business buying a home at that moment in their lives. The conversations are different every time. The underlying decision is always the same.

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"What's my payment going to be?"

A buyer doesn't say "I can afford a $750,000 house." They say "I can afford $4,200 a month." Everything else works backward from there. This is not a theory. It's what happens, every day, in every transaction.

Building the Model

The Seattle Housing Affordability Model started with a simple question: if buyers decide based on the payment, what does the payment actually look like over time?

I calculated this for every month from January 1990 to today. 431 data points for Seattle alone. Case-Shiller index for home prices. Freddie Mac survey for mortgage rates. Census data for income. All public data. All verifiable.

What emerged was a channel. Over 35 years, SHAM values for median buyers clustered between 32% and 52%. Below 32%, homes were underpriced relative to income. Above 52%, the market was under stress, and corrections came.

The Insight: Payments Can Lie

If buyers decide based on the payment, and the payment is artificially low, the buyer's perception of affordability is wrong. I built the Exotic Product Overlay to measure this effect — tracking ARMs, interest-only loans, Option ARMs, and temporary buydowns.

In 2006, core SHAM read approximately 57% for Seattle. But buyers using Option ARMs experienced something closer to 45%. The gap was 12 percentage points of hidden stress.

What It Looks Like Today

Today's SHAM reading is largely unmasked. When the model shows 48% for Seattle, that number represents what buyers are actually paying — not a subsidized version of reality.

In 2006, the industry was manufacturing affordability through product innovation. Today, the market is showing buyers the truth. I consider that progress, even if the truth is uncomfortable.

What I Want People to Take From This

I didn't build SHAM to prove that the housing market is overvalued or undervalued. I built it because after 35 years, I got tired of watching buyers make the most consequential financial decision of their lives based on narratives instead of data.