This Seattle Times article headline reads “Seattle’s red-hot home market is cooling. Here are the 3 signs.” (Link to full article: https://bit.ly/3HBrjLE)
A big thanks to the Seattle Times, because it appears they are watching our YouTube channel. Yeah!
Sometimes the media is late to the game, or may not tell the whole story. But this article is timely in reporting that our greater Seattle real estate market is cooling.
In it, the Seattle Times reports the following 3 main points…
1. “Homes aren’t flying off the market as quickly.” This is correct and echoes what we reported in our previous video, that homes are taking longer to sell.
2. “Fewer buyers are taking the plunge.” True. With prices and rates higher, fewer buyers are making offers. The level of uncertainty has increased, which has also contributed to buyers taking a pause from the market.
3. “Prices are leveling off.” Also correct. Generally speaking, homes are currently selling closer to their list prices. No longer are the majority of homes selling for WAY above their asking price. Of course, this is a case-by-case basis as some still sell above the asking price, and others below.
Now we are not saying the Seattle Times hijacked the information from our June market update, but it makes me wonder?
Now the question is. “Where are we headed?” Well, tough to answer as we have opposing forces. On one hand, we have rising interest rates, which make it hard to afford a home. On the other hand, we still have low supply, which props up the prices.
To put the affordability issue into perspective, here are 3 graphs to compare. To keep it simple, the mortgage payments listed include principal and interest, not taxes and insurance. The first graph shows a home purchase in June of 2020. The purchase price is $1,000,000, with a 20% down payment and a 3% interest rate. This means the monthly payment, is around $3,373.
The second graph shows what happened in 2021, which is that home values went up, but rates stayed low. So, this same house now costs around $1,200,000, with a 20% down payment and a 3% interest rate. Now the monthly payment is around $4,047. This is a difference of $674 per month.
Ok, so here is where things get REALLY interesting. This third graph shows what happens when BOTH prices AND interest rates go up. The house that cost $1,000,000 just 2 years ago currently costs around $1.4 million. The 20% down payment is much larger, and the interest rate is much higher at 5.8%. Now the monthly payment is a staggering $6,572.
This is MIND-BLOWING as it showcases the affordability problem. Just 24 months ago, someone buying this house would have a payment of around $3,373. Now, that same house, with the same location and condition has a monthly mortgage payment of around $6,572. That’s an increase of around 95%, or $3,199 per month. This is almost double of what the mortgage payment was just 2 years ago!
Many people could afford the rising prices, OR the rising rates. BUT, to have both rapidly rising prices AND rapidly rising rates is a double whammy that forces buyers out of the market. Yes, salaries have gone up. But not nearly enough to keep pace with home affordability.
The relatively low supply of homes is keeping home values at currently high levels. However, now that we are seeing the supply inch up, this is starting to cause motivated sellers to be more careful in pricing their home. To stay competitive, this means sellers may need to reduce their asking price in order to sell.
There are so many forces at play…inflation, supply chain, stock market, the national and global economy, Russia’s invasion of Ukraine, the pandemic and the list goes on. There are always going to be predictions, but these are educated guesses at best. Whether you are a buyer or seller in our local Seattle Area Real Estate market, the key is to stay informed. Then you can determine how you want to navigate and respond accordingly.