Seattle's Housing Market Has Cooled - Is Now the Time to Buy?

Seattle's Housing Market Has Cooled - Is Now the Time to Buy?

Seattle home prices have experienced a marked decrease in the past year, making it one of the fastest-cooling markets nationwide, according to Redfin chief economist Daryl Fairweather who spoke with KUOW's Angela King.

High mortgage rates have caused many buyers to exit the market. But as rates decrease, it could prompt some to return to home ownership.

1. High Mortgage Rates

Seattle is one of the nation's most expensive housing markets and has been hard-hit by high mortgage rates. According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage has more than doubled in the past year - adding extra stress on first-homebuyers in Seattle.

As a result, Seattle's housing market has begun to cool off rapidly. In fact, it's been rated as the fastest-cooling market in America.

This cooling is due to high mortgage rates and the rise in inflation that's caused them. The Federal Reserve has been raising interest rates to try and combat inflation, but these increasing costs have made it increasingly difficult for people to purchase a home.

Many are delaying home purchases due to rising mortgage interest rates. If you are thinking about buying a house, do so before your rate starts going up.

Recently, Freddie Mac issued a forecast that predicted mortgage rates nationwide would continue to decrease over the course of one to one and half years. They predicted that 30 year mortgage rates should average 6.6% at the start of 2023 and drop to around 5.2% by the fourth quarter of that same year.

Prospective homeowners may find this to be advantageous, however existing homeowners who want to refinance their homes could run into trouble. Refinancing typically involves paying off your old mortgage and replacing it with a new loan.

Over time, this can amount to thousands of dollars in additional costs. Some borrowers are choosing to finance their closing costs into their new loans, which may increase the overall amount even further.

High mortgage rates are impacting real estate prices across the country, including Seattle. While it can be a challenging situation for those looking to purchase a home, there are steps you can take that will make the process smoother and less stressful.

When looking to purchase a home in Seattle, it may be wise to wait for mortgage rates to come down. A knowledgeable real estate agent can assist you in deciding if now is the right time to purchase and what your monthly payment will be.

2. Slower Sales

Seattle may not yet be in a full buyer's market, but it has definitely cooled off due to rising mortgage rates and economic uncertainty. Despite these obstacles, people continue to purchase homes. Many want to move up to larger homes while others simply need somewhere new to live so they're willing to wait until conditions improve.

The slowdown in Seattle is having an effect on home buyers and sellers alike. While some are being priced out of their current homes, other prospective buyers are opting for apartments or condos instead, placing additional strain on renters.

Sales are taking longer, and inventory is steadily diminishing. In October, the number of homes for sale in the Seattle metro area was lower than one year prior. On average, homes were on the market seven days more this month compared to six in September and eight in August.

Meanwhile, the number of condos for sale in Seattle rose 5% month over month and flat compared to last year. The average list price for single family homes within the metro area rose 6% compared to one year earlier, while Eastside listings experienced an uptick of 10%.

Due to all this activity, some tech workers in Seattle are finding it challenging to sell their homes and move elsewhere, especially since their restricted stock units (RSUs) have become worth less. This is especially true for Amazon employees who rely on RSUs as a form of mortgage financing.

Redfin predicts this trend will continue, as rising mortgage rates and other economic conditions add additional stress on the housing market. Therefore, it's essential for both home buyers and sellers to comprehend how their local market is shifting and what their options are.

With so much to consider, consulting an agent is a wise idea. You can even request a complimentary analysis of your local market for further guidance.

3. Fewer Buyers

Seattle was once one of the hottest housing markets in America, but it appears to be cooling off. Recent layoffs and declining tech stock valuations are now exerting downward pressure on prices in the market.

Home prices in Seattle have continued to rise, yet fewer buyers are buying homes and competing for them. According to Redfin, the share of listings that faced competition dropped to 41% from 61% in May and nearly 72% in June 2021.

That's a positive indicator, but it also means fewer people can afford to purchase homes in Seattle and there is less inventory available. Coupled with higher mortgage rates, this presents an unfavorable scenario for anyone looking to purchase a house.

Over the past two years, Chinese buyers have been a major driver of real estate activity in Seattle. But that trend is changing now due to a decline in the value of the Chinese yuan against the U.S. dollar and Vancouver's tax on international homebuyers.

Many Chinese investors purchased homes in the Pacific Northwest, hoping to escape Vancouver's 25 percent tax and take advantage of Seattle's reputation for being an affordable place to live. But with the recent depreciation of the yuan, that trend could reverse itself and Seattle's housing market could experience a sharp downturn.

This has a devastating effect on lower- and middle-income groups who have been hit hardest by the region's inflated home prices. Some may feel compelled to relocate away or take a pay cut in order to survive.

Some people who can't quite give up their dream of owning a home are now renting instead. And as more and more people who cannot afford to purchase begin renting, rents may rise even higher in the coming years.

It's uncertain if rents will eventually stabilize or continue to rise as prices increase, but that has become a major worry for some Seattle-area residents. Fairweather noted in her interview with KUOW's Angela King that this could make it harder for the city's tech workers to purchase homes.

4. Lower Inventory

After two years of record home sales in the Seattle area, inventory levels have begun to decrease. This has given buyers a chance to catch their breath, according to Zillow's recent report.

In Seattle, high mortgage rates and a shortage of supply are impacting the housing market. But one thing remains stable: buyer interest for new homes in the region.

At present, home sales in King County, Pierce County and Snohomish County have reached their lowest inventory levels since Zillow began recording data back in 2006. As of December, there are less than two months of available inventory left on the market in these three counties: King, Pierce & Snohomish counties combined.

This represents a dramatic improvement from the inventory of homes available for buyers in 2021, when there was only 0.5 months worth of listings available.

Despite a decrease in inventory of available homes, prices continue to increase on the market. King County saw its median sales price increase 29% year-over-year from January-May.

Redfin has reported that rising home prices have made it increasingly difficult for homebuyers to afford the homes they desire. As a result, many have chosen to exit the housing market or search for more budget-friendly areas of America to buy in.

Though this is only temporary, there are signs that home inventory levels will return to normal in 2023. According to local experts, new home sales should pick up again during the pre-summer months, keeping the region in a seller's market.

Meanwhile, single family homes in the Seattle area are selling quickly. In August, the median days on market for single family homes dropped to 6 from 7 in July; this trend has continued throughout February and March as well.

Condos in the Seattle area are selling quickly. The sale-to-list price ratio for condos has reached 103%, a multi-year high and the third month running with an over-100% ratio.

Given the low inventory of available homes in Seattle, it's essential to comprehend what this means for prospective buyers and sellers. With lower prices, more people may be able to afford buying a home here.