The Seattle housing market continues to face challenges as mortgage rates hit a 23-year high last month. This increase in rates has worsened the budget constraints for potential home buyers in an already expensive housing market. As a result, both buyers and sellers have been cautious, leading to fewer deals being struck and mostly stagnant home prices in September.
According to the Northwest Multiple Listing Service, the median single-family home in King County sold for $900,000 last month, a 1% decrease from the previous month but a 3% increase compared to the same period last year. In Seattle, the median home sold for $926,250, a 3% increase from the previous year. Prices also saw increases of 4% in Southeast King County, 2% in North King County, and 6% on the Eastside. However, prices in Southwest King County saw a 3% decrease.
Although median prices in other regions fluctuated compared to September 2022, the limited supply of homes for sale prevented significant drops. Median prices in Snohomish County rose by 2% to $749,900, while Pierce County experienced a 1% decrease to $535,000. In Kitsap County, median prices increased by 4% to $559,995.
Experts attribute the relatively stagnant market to high interest rates, which have become the biggest obstacle for the Seattle-area housing market. Buyers struggle to afford higher mortgage rates, and the lack of significant price reductions fails to offset these rates. Meanwhile, sellers have been hesitant to move if they have a low interest rate in their current homes.
The average rate for a 30-year fixed-rate mortgage reached 7.3% in late September, the highest since late 2000. In September 2022, rates averaged 6.7%. As a result, the mortgage payment for a typical home in the greater Seattle area stands at around $3,900 per month, according to Zillow. To afford this payment without exceeding 30% of their household income on housing, homebuyers would need to earn approximately $155,000 annually.
This financial reality has led to a decrease in market activity. In King County, the number of deals struck between buyers and sellers decreased by 12% compared to the previous year. Pending sales also declined sharply in Kitsap, Snohomish, and Pierce counties.
Buyers are demanding more from their potential purchases due to the high interest rates. They expect homes to meet their exact criteria or have negotiable prices. However, the limited supply of homes on the market has prevented prices from dropping significantly. Even in King County, where more new homes entered the market in September compared to August, the number of new listings was still 23% lower than a year ago.
Inventory shortages have resulted in elevated prices, even though demand has decreased to some extent. According to Zillow senior economist Orphe Divounguy, it would take between five and eight weeks to sell all the homes currently listed for sale in the region. This is a less frenzied market compared to the height of the pandemic but still tighter for buyers than the four to six months considered a balanced market.
Despite the overall decrease in market activity, some buyers still face competition from multiple offers for desirable homes. Real estate agent Rob Serviss stated that the balance of supply and demand has not shifted significantly, indicating that it is still a seller’s market.
However, not all sellers are experiencing the same market conditions. In September, sellers in the Seattle area dropped prices on more than a quarter of the homes listed for sale, slightly higher than the national average. To attract buyers, some new home builders have resorted to price cuts or offered buyer credits and interest rate buydowns. However, buyers have shown more interest in price reductions rather than rate buydowns.
The current market conditions have led to struggles for home builders and developers as well. Erich Armbruster, a townhome developer, noted that buyers are facing difficulties with increased interest rates, qualification for loans, and general nervousness. In response, his company has reduced prices by approximately 10% from a year ago. However, there is limited room for further price reductions. With the sluggish market affecting profit margins, Armbruster mentioned a slowdown in land acquisition for new projects. This trend is reflected in the decrease in permit applications for detached single-family homes and apartments/condos in Seattle.
In conclusion, Seattle’s housing market continues to face challenges due to high mortgage rates. Buyers and sellers are cautious, leading to fewer deals being struck and a mostly stagnant market. Limited inventory and high demand have kept prices elevated, making it difficult for buyers to afford homes. While sellers have made price reductions, the market remains largely a seller’s market. With uncertain market conditions and permit application reductions, Seattle’s housing supply may continue to be limited in the coming years.