If you’re seeking a silver lining within this otherwise challenging local housing environment it is that there are more homes on the market now than any June in five years. King County home buyers are witnessing the greatest supply of single-family, condo and townhomes since before the pandemic and a rising number of listings have dropped prices after sitting on the market.
Financing that purchase is a different story, as the county experienced the first-ever $1M median price of single-family homes. This is leaving many prospective buyers burdened by the cost of owning a home.
Mortgage rates have persistently hovered around 7%, taking their toll on the market. This double-barrel hit on housing affordability is showing up in Pending sales data. The number of homes going under contract fell from April to May by 13% in Seattle to 876 units and slipped 1.2% across the county (2743).
In addition, the rate of Seattle homes under contract within 30 days on the market fell from 62% in April to 57% last month; Eastside homes found buyers in four weeks or less 71% of the time in May, down from 74% in April.
A snapshot through May shows an unheard-of 40% jump in for-sale listings (3880 units) from a month ago for all home types combined, according to the Northwest Multiple Listing Service. Every month this year has seen inventory growth. The June 1 figure is the highest of any month since October 2022 (4222) and the most for the date since 2019 (5629).
The single-family-home category – which includes townhomes – shows a 25% climb in new listings (3198) from April and a 33% rise year-on-year (YoY), and many of those homes remain on the market. The number of Active single-family listings – for-sale inventory on June 1 – was 48% greater in the past month (2563) and 32% higher YoY in all of King.
The surge in supply should come as a welcome relief to buyers – more options and less competition, right? Not exactly.
Pending listings are a good indicator of future sales and they show buyer weakness – a 15% monthly decline in Seattle for single-family homes (625) and a modest 0.6% lower across the county (2129). These homes tend to reach the closing table about 4-6 weeks after reaching mutual acceptance. Fewer signed contracts signal a market slowdown to come.
Single-family sales rose 16% in May (1938) compared to April, including a 28% surge in Seattle (674) and a 19% rise on the Eastside (612). They are 13% stronger in Seattle YoY and 32% higher on the Eastside, combining for a 17% gain in 12-month sales for King.
Interestingly, competition remains fierce for a fairly wide selection of homes. Roughly 44% of all listings received multiple offers from buyers, based on county sales in late May. That includes about 50% of Eastside listings, where housing activity remains strong, especially in the $1M-$1.5M price range.
Eastside prices for single-family residences are up 17% YoY to $1.69M, including 1.3% firmer since April. That helped boost the overall median price of a single-family home in King County to an all-time high of $1,001,000; that’s up 2.1% for the month, 18% year-to-date, and 10% YoY.
As you can see, there is a tale of two housing environments for single-family homes. While the Eastside market roars, Seattle is pulling back. In addition to the 15% monthly decline and 11% fall YoY in Pending sales, the Emerald City experienced a 3.2% price drop from April to $965,000; while 6.6% higher from last year, the median price is well off the 13% YoY gain recorded only a month ago, indicating how quickly prices are backsliding in Seattle.
Single-family inventory stands at 1.3 months, which means it would take that long – 40 days, essentially – to exhaust all available supply if no other homes hit the market. That’s up from 1.0 months’ supply in April and 1.2 a year ago. Eastside inventory for single-family homes is 1.1 months, up from 0.9 in April, while Seattle has 1.4 months available, up from 1.3.
Condo prices also climbed in May, setting record highs for King County ($595,000), the Eastside ($748,500) and Seattle ($600,000). Sales jumped 9.7% for the month across the county (568 units) and a solid 17% YoY. Notably, Seattle experienced a 9.1% decline in Pending sales (251) and the Eastside dropped 5.1% (222), contributing to a 3.0% drop for King (614) – again, signaling a likely drop in closings in June. There are 2.3 months’ inventory in King, including a buyer-favorable 3.4 months in Seattle and 6.0 in downtown/Belltown.
A University of Washington report noted a typical two-bedroom home in King County sold in Q1 for $691,100, up 5.5% from a year ago. A typical three-bed home in King fetched $848,300, up 15% from 2023, according to the report from the university’s Washington Center for Real Estate Research.
In addition to King County’s 1.7% median price month-to-month increase on all home types, to $890,000, Snohomish County saw the sharpest jump – up 6.4% from April to May ($785,000). Kitsap added 5.5% on its median price ($579,990) while Pierce experienced a modest 0.2% decline ($551,025). Single-family home prices were led by Kitsap County, jumping 5.4% in the month ($579,970), followed by Snohomish up 3.6% ($828,000) and King up 2.1% ($1,001,000). Pierce again bucked the trend, with median prices dropping 0.9% ($560,000) for the month. Year-to-year, single-family prices were broadly higher, led by a 10% boost in King, 6.2% in Snohomish, 4.0% higher in Kitsap and up 2.8% in Pierce. Condo prices escalated 83% YoY in Kitsap ($595,000), 18% in King ($595,000) and 8.2% in Snohomish – but were down 2.3% in Pierce ($389,950).
After mortgage rates, rising prices remain the hottest topic of conversation for consumers. Our region is one of the only markets in the country experiencing surging price appreciation. One wonders, as the number of active listings climbs when will supply meet demand. At least one academic believes it will be soon.
“The surge of new listings coming to market are overpriced, leading to a rapidly increasing number of delistings and price drops,” said Mike Del Prete, a real estate lecturer at the University of Colorado, speaking of the national housing market. “This is the start of a price correction.”
Independent real estate data firm Altos Research reports a jump in recent weeks in price reductions – an admittedly puzzling development when reporting this latest pricing data. A full 34% of all single-family listings in Seattle have experienced a price drop. King County has seen a quarter of single-family homes cut prices and the broader Seattle/Tacoma region is experiencing a drop in single-family prices on 27% of the homes for sale. Thirty percent of all condos have also had price cuts when examining all three of these geographic areas.
Del Prete said sellers are bringing more inventory to market, but with “aspirational pricing” that buyers are not willing to – or simply cannot – pay. The record number of pricing corrective measures will likely lead to an overall correction – lower prices – as supply and demand continue to rebalance, he predicted. If only that were true here!
Another respected observer affirms a growing number of buyers balking at the cost of purchasing a home.
“We are witnessing an important shift in home buying sentiment. This time last year, potential homebuyers had the mentality to get into home buying despite high rates and a lack of homes for sale,” Selma Hepp, chief economist for housing data firm CoreLogic, said of the national picture. “With little expectation of interest rates going down in the near term, the mindset today is to wait and see.”
Since the start of the pandemic, the cost of living in the Seattle/Tacoma region has soared 25% (including food and energy segments), while King County home prices have risen 35% (April 2020-April 2024 data).
In the 1980s, it took about 3.5 years’ worth of household income to purchase the typical home. Today, it takes 6.3 years’ worth of household income, according to national statistics.
In the 26 months beginning March 2022, the U.S. housing market witnessed dramatic changes in affordability as rates for a 30-year conventional mortgage skyrocketed 327 basis points (3.27 percentage points) to today’s rate, according to Freddie Mac’s survey of lenders.
“With mortgage rates rising back over 7%, the willingness of homebuyers to take a stab this season is diminished,” Ralph McLaughlin, senior economist at realtor.com, was quoted by Bloomberg. “You can have high prices or you can have high mortgage rates, but you can’t have both for long.”
The peak of the national housing market came in January 2021 when mortgage rates were about 2.7% and sales volumes climbed to 6.6M units annually. Existing home sales are now closer to 4.1M, virtually unchanged from a year ago and slightly above the low point of 3.9M sales in October 2023 when mortgage rates were averaging 8%. For context, since 1971, mortgage rates have averaged 7.74%.
“Households are taking the headlines in and see rising insurance costs and climate change disruptions contributing to the affordability challenges, and that is also having a negative impact on sentiment,” noted Hepp from CoreLogic.
This squeeze in personal finances is causing many prospective buyers and sellers to continue saving and watch the direction of housing prices and interest rates, as well as measure the security of their jobs and other future risks. Many current homeowners thinking of moving are also holding their positions in the well-documented mortgage-rate lock-in phenomenon.
Most existing mortgage borrowers across generations are enjoying interest rates at or below 5%, according to new research from Residential Club:
> 77% – Silent Gen (born 1925-1945)
>> 79% – Baby Boomers (1946-1964)
>>> 80% – Gen X (1965-1979)
>>>> 80% – Millennials (1980-1998)
>>>>> 52% – Gen Z (1999-2004)
The Federal Housing Finance Agency researched the impact of the lock-in effect on the housing market. In its March report, FHFA researchers estimate the number of transactions killed by the rapidly rising mortgage rates between March 2022 and December 2023 was 1.3M fewer sales. The report speculated that typical homeowners with a 4% mortgage are 50% less likely to sell their home when rates are at 7% than if prevailing rates were still at 4%.
Mortgage applications are at a 3-month low in the U.S. and the interest rate waiting game will be waiting some more – possibly a lot more. According to a May forecast from Fannie Mae, 2024 will end with an average 30-year mortgage rate of 7.0%, down modestly from 7.3% at the start of the year.
Like many other forecasters, Fannie Mae has been well off its original estimates from the start of the year when it predicted an average mortgage rate of 5.8% by next Dec. 31. What happened to rates in the 6s?! Fannie Mae now expects to see them in Q1 of next year.
These rates are typically determined by investors, who purchase mortgage securities and set the interest level about 2.75 percentage points above the 10-year Treasury rate, which was trading at 4.28%, as of this writing. These investors also take their cue from the Federal funds rate, which is in a range of 5.25%-5.5% today.
The central bank sets the Fed funds rate – the interest percentage that banks can charge when borrowing from each other – and it is expected to fall once inflation settles closer to 2.0%. Today’s rate of inflation is 3.4%, meaning the costs of a particular basket of items is that amount higher for the 12 months ending in April. The inflation rate has been stuck in a narrow range for several months, thus delaying the softening of financing costs.
Industry insiders put the current odds of a cut to the Fed funds rate at 60% in September and 72% in November – nothing sooner. That may change after the May inflation report is released on June 12. As inflation falls, so too shall financing costs … typically.
Locally, the economy remains relatively strong, with unemployment at 4.3% across the broader Seattle-Tacoma region, which economists consider “full employment.” The figure drops to 4.1% for the City of Seattle (March), which is up a full percentage point from a year ago, following rounds of layoffs from some tech firms, including Amazon and Expedia.
It is noteworthy that the tech workforce is quietly enjoying a banner windfall as stock prices make solid gains. Shareholders of Nvidia, in particular, are seeing a surge in stock value with shares up a remarkable 143% since the start of the year (YtD). Among other tech companies with a significant presence here, Meta shares have jumped 39% YtD, Alphabet has enjoyed a 27% price increase and Amazon has gained 21%. Even Costco shareholders are smiling, with company stock worth 28% more than on Jan. 1. Oh, and Microsoft: It’s only the most valuable business in the world, at $3.15T, with Amazon at No. 5 ($1.92T).
A strong stock market adds liquidity, thus helping local housing activity keep pace as this group of buyers use more cash to complete their purchases. An unofficial survey of all county sales in May shows 20% were paid in cash, including 18% for single-family homes. Across the nation, 28% of all April sales (latest data) were cash deals. (It helps to live in a major metro area like ours where 1 in 14 people is a millionaire, according to a recent study.)
This may help explain why the median age of first-time buyers in the U.S. is at an all-time high of 35, as it takes longer than ever to get on the property ladder. As an older cohort, these buyers tend to be more financially diverse, utilizing stocks, cryptocurrency and retirement funds for down payments.
An analysis of this nation’s household wealth shows how about two-thirds of it is now concentrated in 10% of the households. This high-end market of luxury cars and homes is far less sensitive to financing costs like mortgage rates or prices, suggesting the high-end housing market is less volatile to the vagaries of the economy.
In other news, new homes were built in April across the U.S. at a seasonally adjusted annual rate of 1.36M units, up 5.7% from March but below economists’ expectations. Housing completions, however, jumped 8.6% month over month and 15% YoY to 1.62M. Sales of those new homes fell 4.7% between March and April and were down 6.6% YoY to 634K units annualized. Permits to begin construction were down 3% for the month to 1.44M.