There is an overall sense that “normalcy” is returning to the market with June prices showing their smallest growth since June 2020.
According to the Northwest Multiple Listing Service’s monthly report, released July 6th, realtors overall said there were more houses on the market, and for longer, in June, with prices continuing to stabilize, contrasting with the massive surges seen over the last two years. Though the market is a bit more balanced and price hikes appear to be leveling out, buyers are still contending with an expensive and challenging landscape.
When trying to assess what is happening in the local real estate market, it is valuable to consider the following three indicators.
1) The percentage of new listings that go pending, or under contract in the first 30 days. During the pandemic, the market was unprecedented with over 90% of new listings going pending within this time frame. Currently, 68.5% homes are sitting on the market during this time. What this indicates is that we are finally building inventory. We are seeing an increase in market time to almost a month and a half. However, there is a long way to go for the market to reach neutrality, which is typically found between four and six months of inventory.
2) Interest Rates. Interest rates have recently been increased by the Fed to rein in inflation. Rates are currently at around 5.5% for a 30-year fixed conventional loan. Pre-Covid, rates were around 3.75%, then the stimulus packages were introduced, and the Fed lowered the rates to nearly zero. This gave the banks a rare opportunity to offer mortgage rates around 2%. Historically speaking, interest rates in the mid five’s are a “good” rate.
Lawrence Yun, Chief Economist for the National Association of Realtors, speculates that banks have “baked-in” the future rate hike that have been announced by the Fed. He thinks that we should see rates stabilize around 5-6%. A challenge with rising rates is that some buyers who qualified for lower rates in recent years may have a harder time qualifying to make the higher payments that will result.
3) Supply and Demand. The increase in inventory provides some breathing room for buyers. Last year, we hit an all-time-record-low in number of homes for sale – it was frantic for buyers, usually requiring they waive all contingencies to be competitive. Currently, buyers are once again, in many cases, able to include these safeguards and avoid the wild escalations between $50-$200K. Currently, buyers may face just one to two offers, as opposed to 10 or 20.
Prices, traditionally, are lower and homes sit longer mid-summer, as fewer people are prioritizing house hunting. However, this may not indicate a longer-term significant shift in pricing. Most economists are predicting that prices will level-off, but that home will not lose appreciation. Many experts predict a one to two percent increase in appreciation in 2022.
Rental Market. Although I don’t really work in the rental market, it feels important to mention what is happening on this front, as times are tough out there. Seattle rent continues to increase, as has demand. I’ve heard stories of applicants calling as soon as a rental unit hits the market and being one of 10-20 callers.
According to ApartmentList.com Seattle’s median 3-bedroom rent for an apartment is $4,629 month. This equates to, approximately, a $800K home with 20% down on a 30-year fixed 5.5% interest rate loan. If you can swing it, real estate is still a solid investment.