What’s Going On in the Seattle and Eastside Real Estate Market?
There is a “market shift” which we are all experiencing as daily consumers which is carrying over into the real estate market. Inflation. Higher costs of living. Consumer interest rates. Mortgage interest rates.
We are all experiencing our dollar not going as far as it used to…Gas, home energy and food,
and buying power for homes. As a result the Seattle and Eastside residential real estate
market started slowing down as mortgage interest rates increased. As expected, the Fed (Federal Reserve) increased rates (Federal Funds Rate) last week November (+.75%). We anticipate that their next move to curb rising inflation will be to increase rates again in December (+.5%). December’s rate decision will be reported 12/14, 2p ET.
History has shown that home prices and demand ebbs and flows in cycles. The amount of money consumers can afford to spend on homes, greatly impacts the overall demand for homes.
S&P/Case-Shiller U.S. National Home Price Index
Mortgage interest rates control how much a (non-cash) home buyer can afford to borrow for their home purchase. Higher interest rates reduce a (non-cash) home buyer’s borrowing power and in-turn buying power. As buying power decreases, buyer demand wains, leading to a decreased buyer demand in the market. Accordingly inventory levels typically start to rise. As inventory levels rise, days on the market increases, and values flatten out and/or fall.
Although we are up slightly (year over year) from 2021 numbers, in recent months, the trend is downward. We are experiencing all of this in the Seattle and Eastside residential real estate markets now:
- Home prices are flattening out and falling
- Days on the market are increasing
- Inventory levels are on the rise
Keeping a Level Head and Letting Data Help Us Understand…
Yes, the number of single family homes available for sale in King County is on the rise, BUT, by appropriate perspective, we are still in a Seller’s Market, as defined by the number of month’s supply of homes currently available on the market. While the number of homes available for sale is increasing, it’s still within a healthy range to moderate price/value depreciation.
The Feds are attempting to control inflation through increases in consumer interest rates. As inflation flattens out and wains…we can anticipate mortgage interest rates to follow a downward trend.
Mortgage lenders have increased the cost of getting a home mortgage now, because in their opinion, the mortgage rates will come back down (around 4%) in the spring time. At that time, all of these newly acquired (higher interest) loans, are anticipated to refinance at a lower rate. Accordingly, the mortgage lenders are collecting their cost of doing business up front, by adding up front fees (~2 points), to insure their profits up front. We would not expect them to be in business to lose money.
Although higher consumer prices and higher interest rates are disliked by everyone, We have expected it for a while. It’s important to realize that this is temporary.
Looking Ahead into 2023
The home mortgage market now is anticipating a peak in rates, followed by a fall in interest rates in early to mid 2023. By spring of 2023, we anticipate (yes… we have crystal ball) mortgage rates to fall into the 4% range.
With falling inflation numbers, we anticipate the Fed to ease the Fed Funds Rate, and the mortgage interest rates will decrease accordingly.
For the spring 2023 market we anticipate:
- Lower interest rates
- The “Prime Season” for sellers, with longer, warmer days
- Inventory levels will likely rise in the very short term, but to moderate and fall, with…
- Buyer demand increasing with more affordable interest rates
Plan for the future:
Sellers: Prepare your home to outshine the competition!
Home-buyers have more information to “shop” the residential real estate market than ever before. Astute buyers rely also on their senses when they visit every home the go see in person. A home that makes a buyer “feel” excited about being in the home, greatly increases the success of that home selling before the competition . Be the home that outshines competition and sells first for more money.
Buyers: Buying now vs. waiting…
In the current market, buyers have the advantage of:
- More inventory and decreased competition from other buyers
- More opportunity to negotiate: inspections, seller contributions toward closing costs
- Fewer instances when you must do a pre-inspection… saving buyers money, time and energy
- Fewer concessions of waiving all contingencies… providing added security for buyers.
- There is no (crystal ball) guarantee of when interest rates will come back down to ~4%
- Once interest rates do come back down, it’s very likely the advantages above will evaporate in the climate of increased buyer competition
- Once interest rates do come back down, buyer demand will be on the rise again
- With rising buyer demand, inventory levels will start to fall again
- One advantage of waiting… you can continue to save money to apply to a larger down payment, which helps you compete more aggressively with your future offer/s.
How can you best prepare for the market shifts ahead?
We’d love to have the opportunity to understand all of your needs and goals and visions of your next home sale and or purchase.
Let’s schedule time to talk in person, by phone or over Zoom.