The past few years in western Washington can be referred to as the golden age of selling your home. Sellers have had unprecedented control over the market commanding prices up to hundreds of thousands of dollars over asking price. Numerous factors have contributed to this including a massive influx of people to the area, historically low inventory, prime location. However, the largest factor leading to such a competitive buyers’ market was interest rates. The lowest rates in the history of the United States occurred in 2020 with rates sitting at 2.68% (Rocket Mortgage). This led to a frenzy by buyers, all of whom were trying to lock in the lowest rate possible. Additionally, this low of a mortgage rate allowed buyers to spend more and justify exorbitant over asking price offers.
The golden age of sellers
While sellers beamed in glee watching their home prices soar up to 40% a year. Buyers became demoralized “About 73% of the participants said it’s a bad time to buy a home, setting a new survey low.” (HW Media). Buyers were forced to bid on nearly ten homes before securing a property. Buyers were consistently beat out on offers that could go hundreds of thousands of dollars over asking. While low interest rates were seen as an incentive to buy, they also served as a massive detriment to buyers. The market became far to competitive leading to lower inventory. Sellers knew they could get top dollar for their homes but also knew they would then have to compete in the most competitive housing market to date. This led to less homeowners deciding to sell and created far more competition on the few remaining homes.
The era of crazy bidding wars appears to be coming to an end and a balanced market is starting to come into view. Now obviously bidding wars won't just end they will still occur just with less frequency. Additionally, the market is still competitive, just less so than a few months ago. Much of this change can also be related to interest rates. The average interest rate on March first, 2022, was 3.6(Leslie cook) now as of April 6th interest rates were sitting at 6.5% (Leslie cook). This is a shocking month over month rise that has shocked the market to the core. Homes are no longer going for hundreds of thousands over, bidding wars a rare, the sale cycle is moving from one week to three to four weeks, and buyers are becoming more cautious.
Need to worry?
This is a staggering no! It is rather a time to rejoice that the housing market is becoming stable again. For sellers your homes are still getting the absolute top price. However, they are not going far over asking price. For buyers, you now won’t have to compete with ten other parties all vying for one property. Additionally, interest rate hikes have scared many buyers. The good news is that rates are still historically very low. Throughout the 90s and 2000s rates were sitting at low 7% up to 10%. Currently rates are around 5.5% and expected to still drop. Other good news includes more homes on the market, healthy home equity increases that won’t result in a recession, along with additional neighborhoods being built. All of this culminates to make the housing market a sustainable and safe economic venture.
Though experts can’t quite put a finger on exactly what home prices will do in the coming few months, the general consensus is that we’ll likely see a steady increase before an eventual slowdown. Here’s what pros told us.
Price appreciation could begin to slow down this month, says Holden Lewis, home and mortgage expert at Nerdwallet
“Home prices have been rising fast, and we might see a slowdown beginning in April as home buyers cope with skyrocketing mortgage rates,” says Holden Lewis, home and mortgage expert at Nerdwallet. Indeed, Bankrate data on mortgage rates revealed that average rates on a 30-year mortgage have now crossed the 5% threshold, with pros saying they may rise further in 2022.
Prices will rise, but inflation and higher interest rates may moderate those price increases, says Realtor.com senior economist George Ratiu
“As we head into … the spring season, I expect demand to keep upward pressure on prices, however as inflation continues to shrink buyers’ incomes and further jumps in interest rates cut into their buying power, demand may soften, which may lead to a moderation in the price trajectory in the second half of the year,” says Ratiu.
But the shortage of homes means we can expect prices to remain high during the spring homebuying season, says Bankrate.com analyst Jeff Ostrowski
“The median price of existing homes sold in February was up 15% from a year earlier, the National Association of Realtors said in March. Still, there’s an extreme shortage of homes for sale and that means prices are going to remain high for the spring homebuying season,” says Ostrowski.
Indeed, Ratiu explains the shortage like this: “Due to pandemic responses, labor shortages and accompanying supply chain bottlenecks which induced sharp volatility in commodity prices, the pace of new home construction faltered during 2020 and 2021,” says Ratiu. As a result, the shortage of new homes increased from 3.8 million in January 2020 to 5.8 million in January 2022.
Expect year-over-year, double-digit price growth, says Lawrence Yun, chief economist for the National Association of Realtors
There’s an acute shortage of inventory and many properties have multiple offers on them, despite higher mortgage rates, says Lawrence Yun, National Association of Realtors (NAR) chief economist. “Some believe the interest rates will rise even more if they wait and thereby further push up demand. Home price growth on a 12-month basis should be on solid double-digit appreciation through the spring months,” says Yun.
The competitive market will keep prices high, says Nicole Bachaud, Zillow economist
Bachaud says the market remains sizzling hot despite some of the most challenging conditions we’ve ever seen for buyers. “Homes are on and off the market in 11 days on average and sales volume is higher now than pre-pandemic even with record-low inventory. This competitive market continues to drive home prices higher and higher,” says Bachaud.
Locally in the Seattle Metro area:
The latest MLS report shows brokers added 11,197 new listings of single-family homes and condominiums to inventory during March, up from the year-ago total of 10,562. Last month's total is up from February's figure of 7,920 for a gain of more than 41%. It also marked the highest volume of new listings added during a month since September 2021 when members added 11,373 listings.
James Young, director of the Washington Center for Real Estate Research at the University of Washington, noted improvements in inventory in "many of the markets along the I-5 corridor." His analysis of active listings shows robust growth since January in several counties, including Snohomish (up nearly 54%), Lewis (up 47%), Thurston (up 42%), Pierce (up nearly 40%), and Skagit (up 32%).
Nevertheless, with pending sales (10,059) nearly matching new listings, inventory remained limited system wide. The MLS report shows only 0.58 months of supply, with King, Pierce, Snohomish and Thurston counties all having less than two weeks of supply.
"When you consider at one time a normal market inventory was 4-to-6 months, we now consider that measure a relic of times gone by," commented Dick Beeson, managing broker at RE/MAX Northwest Brokers, adding, "We will not see such numbers of homes for sale for possibly a generation or more."
The supply squeeze is contributing to competition among hopeful homeowners and rising prices.
Broker Dean Rebhuhn, owner at Village Homes and Properties, also said rising mortgage rates have not slowed activity. "However, if homes are priced over the market, savvy sellers are making price adjustments." For now, Rebhuhn said multiple offers "are still the rule. Buyers are making strong offers, pre-inspecting homes, and making sure financing is in place."
Well-paying jobs and lifestyle needs are driving the market, with some buyers using investments, 401K funds, and family assistance, according to Rebhuhn. He noted Grays Harbor and Ocean Shores offer "good inventory and great values." Prices in Grays Harbor County surged nearly 25% from a year ago, rising from $280,000 to $349,950. That's about $489,000 less than the median price in King County.
Price appreciation will slow: The local market has seen tremendous price appreciation in the last two years. We anticipate that price appreciation will moderate slightly this year. After the big price boost in the spring, premium pricing may lower this summer. However, the year 2022 will end with positive price appreciation overall.
Luxury market stability: The luxury market has taken off over the last two years and will continue to be a strong segment of the local market due to solid job growth, the wealth effect and historically low interest rates.
Inflation will have an effect: It’s also important to keep an eye on rising energy costs as well as supply chain and staffing issues, all of which could affect the housing industry this year.
Buyers’ debt to income ratios will be adjusted down: It’s common today for buyers to have debt to income ratios around 44% approved by lenders. With increasing prices on everything from milk to gas, to staple grocery items lenders will want to safeguard their investments and may lower this threshold to 40-42% (And that adjustment can mean a lot to your buyers)
Fewer bidding wars: As buyers are dealing with the combination on increasing rates, inflation and general uncertainty many are going to be more cautious about overpaying or perceiving that they are overpaying for a home.
Inventory and days on market will increase: “Inventory and mortgage rates will determine how far and how fast home prices will rise this year and beyond,” said Zillow senior economist Jeff Tucker. “We are seeing new listings returning to the market, slowly, as we enter the hottest selling season of the year, but this supply deficit is going to take a long time to fill.”
Inflation considerations: Inflation has already begun eroding the bottom lines of American households, with the Bureau of Labor Statistics noting rising costs for energy, housing and food as prime factors driving it to a four-decade high.