SHAM: Measuring What Buyers Actually Experience

The Premise

After 35 years of sitting across the table from homebuyers, one observation holds without exception: buyers make purchasing decisions based on the monthly payment.

Not the home price. Not the interest rate. Not the loan amount. The payment.

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. Income determines what payment a buyer can sustain. The interest rate determines how much they can borrow to achieve that payment. The loan amount, combined with their down payment, determines the price they can offer.

This is not a theory. It is what happens in every purchase transaction, in every market, every day. The Seattle Housing Affordability Model is built on this observable reality.

Why Payment Matters More Than Price

Home prices get all the headlines. But price without context is meaningless.

Conversely, a $400,000 home at 7% costs $2,838 in PITI. A buyer stretching to afford $500,000 at 3% would find $400,000 at 7% more expensive in real monthly terms, despite a $100,000 lower price.

This is why price-to-income ratios — the standard affordability metric used by most analysts — miss the point. They capture the numerator (price) but ignore the financing conditions that determine what the buyer actually pays. SHAM captures the payment the buyer actually writes every month, because that is the number that determines whether homeownership is sustainable.

How SHAM Works

For any given month from January 1990 to the present, SHAM answers one question: what percentage of gross income would a median-income household spend on housing if they bought a median-priced home at that month's prevailing rates and down payment norms?

The Inputs

The Calculation

The math is straightforward. For any month:

1. Look up the Case-Shiller index → derive median home price
2. Apply the blended down payment percentage → derive loan amount
3. Calculate principal and interest using standard 30-year amortization at that month's rate
4. Add monthly property tax, insurance, and PMI where applicable
5. Divide total monthly PITI by monthly gross income
6. That percentage is the SHAM value

The Affordability Channel: What 35 Years of Data Show

Over 431 monthly observations in Seattle — and validated across three additional markets — SHAM values for median buyers cluster within a consistent band.

This channel held through every cycle in the data: the S&L aftermath, dot-com, the 2003–2007 bubble, the crash, the recovery, COVID, and the 2022 rate shock.

The Payment Illusion: Exotic Product Overlay

Here is the insight that 35 years of lending experience makes visible and that most affordability models miss entirely.

If buyers make decisions based on the monthly payment, then anything that lowers the payment changes the buyer's perception of what they can afford — even if it doesn't change the underlying economics. The SHAM Exotic Product Overlay measures the gap between what the housing market actually costs and what buyers were told it costs.

The Four Masks

The 2006 Gap: What Hidden Stress Looks Like

In 2006, core SHAM for Seattle — measuring what homes actually cost at standard 30-year fixed rates — read approximately 57%. Deep in the stressed zone.

But that's not what buyers experienced. The buyer using an Option ARM with a 1% payment rate experienced something closer to 45%. The perceived affordability was 12 percentage points lower than reality.

Why This Matters Now

The exotic product landscape is far more subdued today. ARM share is low. Interest-only and negative amortization products are essentially extinct for conforming loans. Today's SHAM reading is largely unmasked. When SHAM shows 48% in November 2025, that number represents what buyers are actually paying, not a subsidized version. Whether that's reassuring or concerning depends on your perspective, but buyers today are making decisions based on payments that reflect long-term reality — which was not the case in 2006.

Which Income Tells the True Story

In February 2026, the San Francisco Federal Reserve published research demonstrating that house prices track per capita income — not median household income — especially after 2000. (Louie, Mondragon, Najjar, Wieland, "Housing Affordability and Housing Demand," FRBSF Economic Letter 2026-03.)

SHAM had independently observed the same dynamic and incorporates a dual-income toggle:

By 2024, per capita income in King County exceeded median household income for the first time in our data. The gap between per capita SHAM and median SHAM narrowed from +21.70 percentage points in 1990 to near zero. Housing is now priced to what the buyer pool can afford, and the buyer pool is no longer representative of the typical household.

The Model Works Across Markets

SHAM was built for Seattle but validated across four markets to confirm its mechanics are universal.

Sources: HMDA loan records (1.69 million transactions), Tax Foundation/Census ACS 2023, Bankrate/Quadrant 2025.

Despite a 6.5x price range from Detroit to San Francisco, the same affordability mechanics operate in every market. We call this the Altitude Analogy — water boils at different temperatures at different elevations, but the physics are identical. Standard markets show ceilings around 50–55%. Elevated markets around 55–60%. Premium markets around 60–65%.

What SHAM Cannot Do

• SHAM measures affordability stress at the point of purchase. It does not track ongoing affordability for existing homeowners.
• It does not predict prices, forecast crashes, or recommend buying or selling.
• It does not account for individual circumstances — credit scores, savings, household composition, job stability — that determine whether a specific person should buy a specific home.
• The 32–52% affordability channel is empirical, not theoretical. It describes what has been observed. It is not a guarantee about future behavior.
• Down payment data is national (NAR), not Seattle-specific.
• Income is interpolated from annual data.
• Property tax and insurance rates are current estimates applied retroactively.

These are disclosed limitations, not hidden assumptions.

How to Verify Any SHAM Number

1. Look up the Case-Shiller SEXRNSA index at fred.stlouisfed.org/series/SEXRNSA
2. Multiply the index value by $2,299.50 to get estimated median home price
3. Look up the Freddie Mac 30-year rate at fred.stlouisfed.org/series/MORTGAGE30US
4. Look up King County median income at fred.stlouisfed.org/series/MHIWA53033A052NCEN
5. Apply the NAR blended down payment for that year
6. Calculate PITI using standard amortization, 0.85% property tax, 0.50% insurance, applicable PMI
7. Divide monthly PITI by monthly gross income

Explore SHAM Data

Interactive tools and monthly updates available at SeattleHousingFacts.com