Western Washington housing market cooling

New numbers show home price growth slowed for the first time in months, as high-interest rates and even higher home prices eliminate would-be homebuyers.

After a chaotic year of bidding wars, buyers waiving all contingencies and homes selling for well over the asking price, the housing market may finally be cooling off.

New data from the S&P CoreLogic Case-Shiller Index shows home price growth slowed down for the first time since 2021 in the month of April nationwide, including in western Washington.

In the month of May, a new report from the Northwest Multiple Listing Service (NWMLS) also showed a big boost in active listings and a slowdown in sales.

The changing tides come as mortgage rates soar to their highest level in 14 years, pricing out many would-be homebuyers.

“The housing market is slowing down. It used to be very competitive when interest rates were close to 3%. Now mortgage rates are close to 6%, and it got 50% more expensive to borrow to buy a home right now than it was just a couple of months ago,” said Daryl Fairweather, chief economist at Redfin, a real estate brokerage firm.

“A lot of buyers are just bowing out of the market,” she continued.

In turn, those high-interest rates are taking a toll on buyers’ purchasing power.

According to Redfin, in December 2021, a buyer with a $2,500 monthly housing budget would have been able to purchase a home that cost just over $517,000.

In June 2022, that same budget would only get you a house priced just shy of $400,000.

On average, that means buyers lost roughly $120,000 in purchasing power because of the rate hikes.

In addition, while buyers can afford less, home prices are still high.

“On a $2,500 budget in Seattle, last year you would have been able to afford about 12% of homes, and now it’s only five, six percent of homes,” Fairweather said. “There are just so few homes that are affordable to somebody making $100,000 or less.”

As would-be buyers are priced out, homes are now staying on the market longer.

“Homes aren’t getting as many offers, some aren’t getting offers at all, so they sit on the market and that inventory has a chance to pile up,” Fairweather explained.

Redfin reports a 16.2% increase in Seattle housing inventory from April to May of this year.

NWMLS is based in Kirkland, Washington, and services 26 counties in our region. The nonprofit group reports 13,075 new listings added to its inventory during the month of May — up 9.7% from a year earlier and the highest monthly number since June 2021.

The decline in buyers has led some sellers to adjust their pricing.

“Some (sellers) are dropping their prices. We’re seeing more and more price drops crop up. The market just got too hot all across the country and including Seattle, so now sellers have to be a bit more realistic,” said Fairweather.

Fairweather explained she believes the days of buyers waiving all contingencies are likely in the past, now that there is more inventory and less competition, but that doesn’t mean buyers have the upper hand.

“You still have to pay a lot of money, so it’s not like buyers are really winning in this situation, but I think because there are fewer buyers out there, sellers are having to compromise a bit more,” she said.

Fairweather advises buyers to focus on getting a home that is right for them, and doing the best they can to find what they want based on their budget.

“The good news is when you do find the home, you’re going to have a better chance of winning it because there’s less competition,” she said.

NWMLS is based in Kirkland, Washington, and services 26 counties in our region. The nonprofit group reports 13,075 new listings added to its inventory during the month of May — up 9.7% from a year earlier and the highest monthly number since June 2021.

The decline in buyers has led some sellers to adjust their pricing.

“Some (sellers) are dropping their prices. We’re seeing more and more price drops crop up. The market just got too hot all across the country and including Seattle, so now sellers have to be a bit more realistic,” said Fairweather.

Fairweather explained she believes the days of buyers waiving all contingencies are likely in the past, now that there is more inventory and less competition, but that doesn’t mean buyers have the upper hand.

“You still have to pay a lot of money, so it’s not like buyers are really winning in this situation, but I think because there are fewer buyers out there, sellers are having to compromise a bit more,” she said.

Fairweather advises buyers to focus on getting a home that is right for them, and doing the best they can to find what they want based on their budget.

“The good news is when you do find the home, you’re going to have a better chance of winning it because there’s less competition,” she said.

~Elle Thomas, KIRO 7 News

2024 Housing Market Predictions

Housing prices continue to climb despite sky-high mortgage rates

Experts in a recent Zillow Research survey believe the inventory of housing to return to pre-pandemic levels by the end of 2024.

• Despite soaring mortgage rates pushing down demand for homes, real estate prices are still sky-high.
• Home sales have started to decline however, with some sellers even lowering their asking price, leading some to suspect an impending housing market cool-off.

While there are plenty of signs that housing demand is declining, economists everywhere continue to theorize how long it will take to truly see home prices cool-off. Will the housing market ease in the next few years?

Many home-buying experts seem to think so. In a recent Zillowsurvey, the majority of panelists expect home prices to ease between now and 2024.

The primary issue plaguing the U.S. housing market is fundamentally supply and demand. Homes are simply not being built at a rate fast enough to match their sky-high demand. For context, the stockpile of available homes in the country is currently around two-months worth. In a normal housing environment, the U.S. typically has a five month or higher inventory of homes.

As such, despite the highest mortgage rates in 13 years, and rapidly falling demand for homes, the housing market has remained red hot. Some suspect that further rate hikes, possibly compounded by a recession will be enough to cool down prices. Others feel the housing market is likely to continue growing, but at a much slower rate.

The housing market is, in some sense still recovering from the Covid-19 pandemic. When the pandemic hit, both buyers and sellers were sent into a frenzy, largely due to record-low mortgage rates. Add in a general slow-down in home construction the past few years, has led to the currently shored-up state of the housing market.

When Will the Housing Market Cool-Off?

In the long-term, raising the supply of homes remains one of the only foolproof methods of lowering prices. In that regard, the future may be bright for would-be homebuyers.

According to Zillow Research, the supply of homes may not catch up to historical levels until around 2024. In a survey of housing experts, the majority believe home inventories will reach pre-pandemic levels by the end of 2024.

In the survey, experts were asked what year they expect to see inventory return to at least a monthly average of 1.5 million units. The most optimistic 4% answered 2022, and a further 37% answered 2023. The most frequent answer, from 38% of respondents, was 2024, meaning a cumulative 79% of respondents expect such a restoration of inventory sometime between now and the end of 2024.

It’s difficult to predict the future, especially amidst the rampant uncertainty present today. With that said, it’s clear that help is on the way for first-time home buyers, sooner or later.

By Shrey Dua, InvestorPlace

Cooling housing market – 25% of home listings cut asking price

Home sellers are slashing prices as the housing sector cools, according to a research from a real-estate data firm.

More than 25% of homes on the market right now have cut their price, Altos Research found, which is in stark contrast to how prices have been climbing over the last two years. 

“Rising rates and the shift in the economy has slowed down the super-eager buyers,” Mike Simonsen, co-founder and CEO of Altos Research, a real estate analytics firm, told MarketWatch. “And what we’re feeling is the speed of the shift.”

Put bluntly: “We’re shifting from a real buying frenzy to much more normal conditions,” he added.

Adding to the cooling off: On Wednesday, the U.S. Federal Reserve raised the benchmark interest rate by 0.75 percentage point, the biggest increase since 1994 as it tries to tame rising inflation from a 40-year high.

The U.S. housing market boom amid the pandemic was felt across the country. In a high-demand area like San Jose, California, the typical home was valued at $1.5 million, as of May 31, according to Zillow. That’s up 23.7% from the previous year. In May 2020, the typical home in the Bay Area was valued at $1.09 million.

Under normal conditions, about a third of homes listed on the market for sale take a price cut before they’re sold, Simonsen explained, and when the market is hot, that drops down to 25%. This spring, however, only 14% of homes on the market took a price cut. And that’s a reflection of high demand and low inventory.

“Sellers in the last two years can overprice their home and still get offers — that condition of the frenzy is gone, so it’s a much more normal market,” Simonsen said.

With buyers slowly backing off, that percentage is now climbing, a trend also supported by research from Redfin, a real-estate brokerage. Some 21% of sellers dropped their list price during the four weeks ending June 5, which was the second-highest share on record, going back to 2015, Redin said.

Sellers will need to lower their asking price by summer’s end. “By July, expect to be back to our normal conditions nationally,” Simonsen added. “We’ve been hotter than normal for over two full years since the start of the pandemic. By August, sellers who aren’t prepared will be surprised.”

Good news for first-time home buyers

The median sales price of a house sold in the U.S. was still at a record high of $428,700 in the first quarter of 2022, up from $313,000 in the first quarter of 2019 before the COVID-19 pandemic, according to data from the St. Louis Fed. Simonsen said the magnitude of price cuts could vary, from $5,000 upwards, depending on the value of the house.

For first-time house buyers, who have seen prices gradually rise out of their reach over the last two years, there could be some relief. “If people want to buy a home, they would get outbid by maybe somebody with all-cash, or an investor,” Simonsen said. “But now, selection is increasing, competition is decreasing, and they finally have some opportunities to buy.” 

But don’t expect prices to hit rock-bottom just yet. “There is nothing in the data yet that shows an indication of home prices crashing,” Simonsen said. But “there is an indication of probably zero home price appreciation in 2023.”

~Aarthi Swaminathan, Market Watch

Housing Market leveling off

The recent housing market is more balanced, as a new report shows a significant increase in active listings, a slowdown in sales and prices that are still rising, according to the latest report from the Northwest Multiple Listing Service.

The days of “multiple offers and waived inspections, at least in Pierce County, are behind us,” said Mike Larson, a member of the NWMLS board of directors.

Larson added that buyers are getting a little relief, but not much, as the market eases back into the pre-COVID-19 market.

Over 13,000 new listings were added to the NWMLS inventory during May, an increase of 9.7% year-over-year. It’s also the highest monthly number since June of 2021.

Snohomish and Douglas counties more than doubled their active listings from a year ago, with nearly a 135% increase for each county.

“The significant increase in the number of homes for sale has some speculating that the market is about to implode, but that is very unlikely,” said Matthew Gardner, chief economist at Windermere Real Estate. “What’s more likely to occur is that the additional supply will lead us toward a more balanced market, which after years of such lopsided conditions, is much needed.”

Gardner also believes that rising mortgage rates are not yet negatively impacting the housing market.

“The additional supply of homes for sale is giving buyers more choices, which is something they haven’t had in several years,” Gardner said.

Buyers should expect to pay more for homes and condos, although those increases may be leveling.

~Cox Media

Is a more “normal” market on the horizon?

For the fifth consecutive month, pending home sales declined in March from February, down 1.2%, signaling a potential return to “much calmer” conditions, according to the National Association of Realtors.

Only the northeast region saw an increase in pending sales in March from February, according to an NAR news release based off data from its pending home sales index. But compared to the prior year, “pending sales fell for the 10th consecutive month, by 8.2%, with pending sales down across all regions.”

Lawrence Yun, chief economist for the NAR, said the dip in contract signings suggests “multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions.”

He also expects higher mortgage rates to remain a key factor affecting home sales.

Yun forecasts the 30-year fixed mortgage rate will reach 5.3% by the fourth quarter, resulting in a 2022 mortgage rate average of 4.9%. The average mortgage rate should jump to 5.4% by 2023, Yun said.

“As it stands, the sudden large gains in mortgage rates have reduced the pool of eligible homebuyers, and that has consequently lowered buying activity,” Yun said. “The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor.”

Yun additionally expects inflation will average 8.2% for the year, “although it will start to moderate to 5.5% in the second half of this year.” As of March the higher mortgage rates and sustained price appreciation has resulted in a year-over-year increase of 31% in mortgage payments – although major Sun Belt metros such as Tampa, Phoenix and Las Vegas have seen increases closer to 50% year-over-year.

Despite that, Yun said: “Overall existing-home sales this year look to be down 9% from the heated pace of last year. Home prices are in no danger of decline on a nationwide basis, but the price gains will steadily decelerate such that the median home price in 2022 will likely be up 8% from last year.”

Renters will face similar increases, which Yun says could prompt some renters to explore ownership – although the increasing mortgage rates may price them out.

“Fast-rising rents will encourage renters to consider buying a home, though higher mortgage rates will present challenges,” Yun said. “Strong rent growth nonetheless will lead to a boom in multifamily housing starts, with more than 20% growth this year.”

Even as home inventory remains low, Yun also expects single-family homebuilders to take a cautionary approach, resulting only in a modest “boost to construction of less than 5%.”

~ Kate Douglas, HWMedia

Prices, rates & INVENTORY are up in Seattle

Rising mortgage rates and high home prices mean prospective buyers in Seattle should brace for a financial one-two punch if they plan to purchase a home this spring, but a surge in inventory should keep the city’s housing market humming through the summer.

These findings were laid out in the latest monthly report from Zillow, which said the value of a typical Seattle home has risen nearly 25% since last year. The average price for a home in the city is now $771,631, the report said. If that shocks you, just wait until you hear how much mortgage rates have grown during the same time.

“Higher mortgage rates were anticipated this year, but the speed of their rise has been breathtaking,” said Jeff Tucker, a senior economist at Zillow, in a news release.

In Seattle, homeowners are paying 42.8% more on their monthly mortgages than they were a year ago. The current average mortgage price — $3,009 per month, based on a 30-year mortgage with a 20% down payment — is 21.1% higher than it was at the start of 2022.

By applying these figures to the real world, we see that — in a typical scenario — a Seattle homebuyer could spend $154,326 on a down payment and have their first $3,009 mortgage payment due roughly 30 days later. Conventional wisdom says these steep upfront costs would likely push would-be buyers out of the market, but another factor highlighted in the Zillow report explains why that might not happen.

Inventory, which has been dreadfully low through most of the coronavirus pandemic, is on the rise. While the number of available homes in Seattle is still 17.7% lower than it was a year ago, that figure has grown 37.5% since February.

More inventory means less competition, which keeps already staggering costs lower than they would be if there were fewer houses available. The Zillow report shows that, despite high base prices for homes and mortgages, people in Seattle are still willing to purchase a house — newly pending sales are up nearly 34% since February.

“March was the biggest test yet of whether enough buyers can meet the new asking prices to keep home values growing at a record pace, and the answer was ‘So far, yes,’” Tucker said. “There will be a point when the cost of buying a home deters enough buyers to bring price growth back down to Earth, but for now, there is plenty of fuel in the tank as home shopping season kicks into gear.”

Seattle isn’t alone in the trends detailed in the Zillow report. A typical home in the U.S. is worth 20.6% more than it was at this time last year, and average monthly mortgage payments are 38% higher. Inventory is 22.5% lower than it was last year, but that figure has grown 11.6% since February.

~ Alec Regimbal, SeattlePI

Housing inventory plunges in November to record low

Shopping for a new home in late November most likely gave frustrated buyers little to be thankful for as demand for homes continued to outpace supply.

The number of homes for sale hit an all-time low during the week ending November 28, according to a new report from Redfin, a technology-powered real estate brokerage. During that period, sustained demand pushed the median home price to another record high, and a third of homes sold in one week or less.

“The number of homes for sale typically declines another 15% in December,” said Redfin chief economist Daryl Fairweather. “That means that by the end of the year, there will likely be 100,000 fewer homes for sale than there were in February when housing supply last hit rock bottom. I think more new listings will hit the market in the new year, but there will also be a long line of buyers who are queuing up right now.”

“Meanwhile, headlines and new restrictions related to the omicron variant of the coronavirus might fuel some uncertainty and volatility in the economy,” said Fairweather. “In the short term, global interest rates, including mortgage rates, could fall. In this extremely tight housing market, we would quickly see a proportional increase in competition and home prices.”

Key housing market takeaways

• The median home-sale price hit a new all-time high of $360,375, up 14% year over year. This was up 31% from the same period in 2019 and up 1.5% from a month earlier, far greater than the 0.2% increase seen during the same period last year.
• Asking prices of newly listed homes were up 12% from the same time a year ago and up 27% from 2019 to a median of $349,750.
• Pending home sales were up 8% year over year, and up 49% compared to the same period in 2019.
• New listings of homes for sale were down 4% from a year earlier, but up 12% from 2019. During the seven-day period ending November 28, active listings (the number of homes listed for sale at any point during the period) fell to a new all-time low. For the four-week period, active listings fell 23% from 2020 and 42% from 2019.
• 45% of homes that went under contract had an accepted offer within the first two weeks on the market, above the 39% rate of a year earlier and the 28% rate in 2019. Since the four-week period ending September 19, the share of homes under contract within two weeks is up 2.3 percentage points. During the same time in 2019, the share fell 3.1 points.
• 33% of homes that went under contract had an accepted offer within one week of hitting the market, up from 27% during the same period a year earlier and 18% in 2019. Since the four-week period ending September 12, the share of homes under contract within a week is up 2.9 percentage points. During the same time in 2019, the share fell 2.3 points.
• Homes that sold were on the market for a median of 25 days, down from 31 days a year earlier and 46 days in 2019.
• 43% of homes sold above list price, up from 35% a year earlier and 21% in 2019.
• On average, 3.8% of homes for sale each week had a price drop, up 0.7 percentage points from the same time in 2020 and up 0.2 points from this time in 2019.
• The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, was 100.5%. In other words, the average home sold for 0.5% above its asking price.

Brenda Richardson, Forbes

Home shortage likely to outlast other scarcities

The scarcity of properties that plagued the housing market long before Covid-19 struck the U.S. likely will outlast other pandemic shortages, according to Goldman Sachs economists.

While the supply-chain disruptions impacting the availability of appliances, used cars and computer chips will ease as the pandemic ebbs, real estate won’t be so lucky, the report said.

“Of all the shortages afflicting the US economy, the housing shortage might last the longest,” the economists, led by Goldman Sachs Chief Economist Jan Hatzius, said in the report earlier this month. “While the supply of homes for sale has increased modestly since the spring, it remains well below pre-pandemic levels and the outlook offers no quick fixes for the shortage.”

The headwinds facing homebuilders trying to expand inventory with new houses include shortages of lots, labor and building materials, the report said.

Years of under-building in the wake of the 2008 financial crisis has left the market with a dearth of about 5.2 million single-family homes, according to a report last month from realtor.com.

The lack of new houses has increased competition in the existing-home market. Housing economists use a gauge called “months supply” to measure inventory. It’s an estimate of how long it would take to sell all the properties listed if nothing else came on the market. In a balanced market, it’s typically close to 6 months.

The latest data, for September, showed the months supply at 2.6, the lowest level ever recorded for the month, according to data released last week by the National Association of Realtors.

Some relief is on the way, according to NAR’s housing forecast. Ground-breakings for single-family homes, known as housing starts, likely will total 1.15 million this year, surpassing the 1 million mark for the first time since 2007.

It would be a gain of 15% from 2020, according to Commerce Department data. But, it won’t be enough to satisfy the demand for properties boosted by a Federal Reserve bond-buying program that has kept mortgage rates near 3% since last year.

“Homebuilders continue to face headwinds that were present before the pandemic – especially a lack of construction workers and a lack of available plots to build on – and the pandemic has exacerbated those problems with further delays from supply chain disruptions, lumber shortages, and now economy-wide labor shortages,” the Goldman Sachs report said.

~Kathleen Howley, Forbes

Recent price gains break records

Home-price gains in 2021 are on pace to smash last year’s all-time high after record-low mortgage rates fueled bidding wars across the U.S., Fannie Mae said in a forecast on Friday.

Home prices probably will surge 17% this year, beating the record gain of 11% set in 2020 that surpassed the prior peak of 10% seen at the height of the real estate boom that petered out in mid-2006, the largest U.S. mortgage securitizer said.

Prices for homes began spiking last year after the Federal Reserve stepped into the bond markets in March 2020 to purchase Treasuries and mortgage-backed securities to support the economy during the pandemic and prevent the type of credit crunch that crashed the U.S. financial system in 2008.

Both type of asset purchases — Treasuries and mortgage bonds — put downward pressure on rates because home-financing costs tend to track long-term Treasury yields. When the Fed became the 800-pound gorilla in the bond markets it boosted competition for the fixed assets, which resulted in investors having to accept smaller yields.

“We believe strong price appreciation is likely to continue in coming months,” Fannie Mae economists said in commentary released on Friday with the forecast. “When compared to this past spring, housing market activity has cooled, as indicated by measures such as the number of homes with multiple bids, average days on the market, and sales prices relative to asking prices. However, these indicators all remain well above the historical norm and point to a continued tight market.”

The U.S. real estate market struggled with low inventory prior to the start of the pandemic because of years of underbuilding after the 2008 financial crisis put hundreds of construction companies out of business.

Following an initial lull in the housing market during the first months of the pandemic, demand for real estate began to accelerate as Americans working from home, and often schooling their children at the kitchen table, became dissatisfied with their existing digs.

The average U.S. rate for a 30-year fixed mortgage dipped below 3% for the first time ever in July 2020, four months after the Fed started buying bonds, and went on to set new records a dozen more times in 2020. The current all-time low is the 2.65% set in the first week of 2021, as measured by a Freddie Mac data series that goes back to 1971.

Lower rates typically mean buyers qualify for bigger mortgages because lenders use a formula that compares the monthly bill of the new loan, with its cheaper financing costs, against income and other debts. That sparked bidding wars for property that drove up home prices.

The rate seen in 2021’s first week is likely to stand in the record books as the bottom, Fannie Mae said. The Fed is set to begin tapering those bond purchases in November of December, according to the minutes of last month’s meeting released last week.

The average 30-year fixed rate next year probably will be 3.3%, compared with 2.9% in 2021, the mortgage giant said.

Next year, home-price appreciation is expected to slow but not fall of a cliff, according to the Fannie Mae forecast. The sale price of U.S. homes probably will gain 7.4% in 2022, Fannie Mae said.

That would beat the 3.3% average annual appreciation seen in the decade before the start of the pandemic, according to data from the Federal Housing Finance Agency.

Kathleen Howley, Forbes

‘Frenzied housing market has ‘slim pickings’ in Puget Sound

Housing activity in the Puget Sound region remained “very active” last month even as more inventory hit the market, according to a new report from the Northwest Multiple Listing Services (NWMLS).

While a slight cool-down in the market was detected in the late summer with less homes going under contract, the activity has bounced back with the report showing that brokers added a total of 11,373 new listings for single-family homes and condominiums in September. 

However, inventory remains historically low in the competitive market with prices only projected to increase in the next year. NWMLS brokers reported a total of 7,757 active listings in September, slightly up from August’s high of 7,425 active listings but down 14.8% compared to the same time last year. Inventory for single-family homes in King County took a steep plummet in September, with total active listings down 32.5% from a year ago.

Across all 26 Washington counties surveyed in the report, there is only 0.75 months of inventory. The agency noted that it hasn’t seen more than a one month supply in inventory since July 2020, when it reached 1.04 months.”The housing market intensity for each new listing will continue its upward trajectory as the first of the year approaches,” said J. Lennox Scott, chairman and CEO of John L. Scott Real Estate, in a news release Wednesday.

With slim pickings in inventory and fierce competition, prices have continued to increase. In the past year, the median sales price increased by 14% — or $70,050 — across the 26 counties surveyed by the NWMLS.

And it’s not just King County and the surrounding areas that have experienced steep price increases: “outer suburban” areas along Interstate 5 are also seeing growth, with home prices in Kittitas County jumping by more than 26% compared to a year ago.

The report did note that the market for condominiums — which saw huge declines last year due to the COVID-19 pandemic and less people living in dense, urban areas — has stabilized, with an increase in both sales and prices. In King County, NWMLS showed a 20% jump in the number of condos that went under contract last month compared to a year ago, with median prices rising by 8% to $466,501.

Other nearby counties also saw huge increases in condo prices compared to a year ago: Kitsap jumped by 28.5%, Snohomish was up by 17.8% and Pierce County prices increased by 16.7%. Priced out of buying a single-family home, it is likely that more residential buyers are turning to condominiums, leading to a strong rebound in that market.

“We continue to see a migration of buyers to suburban markets which has resulted in significant year-over-year price growth in areas such as Shoreline, Lake Sammamish, Auburn, Skyway, Woodinville, and Burien,” said Matthew Gardner, chief economist at Windermere Real Estate. “It’s likely that buyers are drawn to these areas because housing is more affordable than in the urban neighborhoods closer to Seattle and Bellevue.”

Experts waned on whether the frenzy-level activity would continue into the winter and holiday season, which is typically slower.

“Buyers should consider staying in the market, if they can, as homeowners who are selling in the last quarter of the year tend to be highly motivated,” said John Deely, executive vice president of operations for Coldwell Banker Bain.

Callie Craighead, SeattlePI