Even after a few weeks of mortgage rate jumps, the Seattle/King County housing market is displaying surprising strength. Every key data point from the Northwest Multiple Listing Service (MLS) gained ground against the previous month – as often happens with the spring housing season taking stride – including the number of new and active listings, homes going under contract and final sales. Prices rose, too, to near-record highs.
We are seeing more homes for sale in submarkets – except for Mercer Island and Woodinville, where active listings are down 30%+ – compared with a year ago. The favorable boost in supply is the result of fewer buyers and sellers compared with most spring seasons. A rare, two-fisted punch of higher prices and interest rates is bruising the market at a time when activity is usually robust.
King County as a whole is swimming in 30% more listings (3439) and 20% additional homes available at the start of the month (2768) compared with data from a year ago. This is based on all homes on the market – single-family, townhome and condo – combined. Pending sales (sellers in contract with buyers) climbed 14% year-on-year (YoY) for King (2775) and Seattle (1012); they are up 23% YoY on the Eastside (865). A typical home in the county fetches a median price of $875,000, up 2.9% since March and 11% YoY, and notably only $5K shy of the all-time high set in both April and May of 2022.
The trend is somewhat similar in the category of single-family homes (which our MLS includes townhomes), with the number of new listings in King up 26% YoY and 18% since March (2551). Active listings (available as of May 1) rose 16% for the month to 1727 homes but were 6.2% lower than this time last year, highlighted by a sharp 20% deficit of homes for sale on the Eastside (440). Pending sales rose 11% for the month and 15% YoY (2142) across the county, and final sales gained 17% from March to April and 14% YoY (1665).
Single-family prices inched ever so close to record territory in King, jumping to $980,000, just $8.8K away from the May 2022 high. The median price rose 3.6% for the month and was up 12% YoY. Seattle single-family homes are selling for a median price of $997,900 – $27.6K shy of the May 2022 record high. Eastside prices inched down 0.3% for the month to $1.67M, which is 16% higher YoY. The area comprised of Redmond and Carnation saw the sharpest price hike YoY – 43% – to $1.71M, while the area west of I-405 in Bellevue (including Clyde Hill and Medina) experienced a 12% YoY median price decline to $3.15M.
The county’s condo market strengthened, with a 44% YoY rise in new listings for April (888), including a 56% surge in Seattle (468). However, the area comprising downtown Seattle and Belltown saw sales slide 26% for the month and 13% YoY (35) even while prices climbed 9.8% in April and 16% YoY to a median of $670,000. Overall, condo prices added 7.4% month-to-month in King to $580,000, or 15% higher YoY. Eastside condo prices jumped 18% for the month and 17% YoY ($722,500), and Seattle prices climbed a moderate 2.0% for the month and 11% YoY ($599,000).
Prices for single-family homes in King County have jumped 15% since the start of the year and 17% for condos – well above national trends (up 0.7% year to date, according to the Case-Shiller Index). Single-family homes are selling at an average of 4% above the original list price in the county and 6% higher on the Eastside. When will home prices level off in our region?
“It may take four to six months to be realized,” noted Mason Virant from the University of Washington, “but higher levels of for-sale inventory should soon have an impact on stabilizing price levels.” Virant is the associate director of the university’s Washington Center for Real Estate Research.
In addition to King County’s 2.9% median price month-to-month increase on all home types, to $875,000, Pierce County saw the sharpest jump – up 3.2% from March to April ($532,250). Kitsap added 2.8% on its median price since March ($549,997) while Snohomish rose 1.1% ($738,000). Single-family home prices in Snohomish jumped 5.2% in a month ($799,500), followed by King up 3.6% ($980,000), and both Pierce ($565,000) and Kitsap ($550,000) rose 2.7% since March. Year-to-year, single-family median prices were broadly higher, led by a 12% boost in King, 7.6% in Pierce, 5.8% higher in Kitsap and up 4.2% in Snohomish. Condo prices escalated 31% YoY in Kitsap ($399,250), 15% in King ($580,000) and 4.7% in Pierce ($415,000) – but were down 3.7% in Snohomish ($525,000).
Rising prices directly result from insufficient housing supply, which remains limited despite the recent boost in listings. Among all home types, there were 1.3 months of inventory in the county – meaning it would take 39 days to exhaust all available supply if no other homes hit the market. The single-family market has only 1.0 months of inventory, including 1.3 months in Seattle and 0.9 on the Eastside. There are 2.0 months of condo inventory available throughout King, including a solid 2.9 months in Seattle and only 1.1 on the Eastside.
Interest Rate Watch
Many consumers are closely monitoring the cost of financing a home before deciding to buy. In April, a typical 30-year, fixed-rate mortgage surpassed 7.0% for the first time this year, climbing by as much as two-thirds of a percentage point over the month. This has left potential homebuyers with the difficult decision to delay a purchase or enter the market and consider refinancing their mortgage later.
It is leaving many Americans frazzled. U.S. consumer confidence deteriorated for the third straight month in April, according to The Conference Board, to the lowest level since July 2022. Americans continue to fret about their short-term financial futures with elevated prices (not just for homes) and interest rates.
Mortgage rates have slipped a bit this month but remain north of 7.0% and are expected to stay around this level as investors watch for signals from the Federal Reserve – the U.S. central bank that dictates inter-bank interest rates. Fed chairman Jerome Powell in recent weeks has said he and fellow board members do not expect to cut interest rates, “until it has gained greater confidence that inflation is moving sustainably toward 2%” and that “it’s likely to take longer than expected to achieve that confidence.”
The Fed originally thought it might lower its Fed funds rate (now in a 5.25%-5.50% range) three times this year, likely by a quarter-percentage point each time. Fed watchers are now predicting only one rate drop in 2024 – possibly in November. The central bank hasn’t changed rates since July 2023 when it last raised them by a quarter point.
Far from the Fed’s 2.0% goal, inflation has settled into a narrow range this year and currently sits at 3.6% annualized. The next inflation update is scheduled for May 15, and the mortgage market will likely adjust within hours of that report.
The Fed chair outlined two scenarios for future rate cuts: one in which inflation resumes the decline seen last year and another if the labor market showed unexpected weakness. “Those are paths in which you could see us cutting rates,” Powell said.
One of these scenarios has begun to play out this month with the employment report showing U.S. businesses adding 175K jobs in April, a figure far less than in March and below monthly estimates of 243K. In addition, the 8.4M job openings around the country are down 12% YoY to the lowest figure since March 2021, and the unemployment rate ticked up to 3.9% from 3.8% in March while wages rose less than anticipated. The slowing job market helped to lower interest rates in the last two weeks.
The last time U.S. unemployment started with a “4” was in January 2022 (4.0%). The pandemic prompted the jobless rate to peak at 14.8% in April 2020, and employment conditions have vastly improved since since, dipping to a low of 3.4% in January 2023.
“There are nearly 6 million more jobs now compared to pre-Covid highs, which suggests more aspiring home buyers exist in the market,” said Lawrence Yun, chief economist for the National Association of Realtors® (NAR). “Home sales are essentially stuck because interest rates have not made any major moves as was anticipated. Consumers want to move, but they need something else to move first – interest rates.”
Yun predicts as many as six to eight rate cuts by the end of 2025, possibly beginning as early as this September.
Affordability Conundrum
Mortgage applications are a quantitative measure of early buyer interest and all signs point to fewer applicants this year compared to last.
Buyers must understand how mortgage rates impact what can be purchased today and paid off every month. Those costs are not being penciled out for many consumers stuck watching from the sidelines.
A Q1 assessment of the U.S. housing market by NAR, released in May, showed a family needed a qualifying income of at least $100K to afford a 10% down payment mortgage in 41% of markets, down from 47% in the previous quarter. As this chart shows, even a small change in rates can have a big impact on purchasing power.
“Normally, when interest rates go up, home prices go down,” said Marci Rossell, a noted U.S. economist (and one of my go-to sources for economic insights). “But these are not normal markets because inventory is so tight.
“The pandemic threw us into a set of circumstances that we have never seen before, and we are still living with the aftermath,” she said.
“You’ve got this incredible juxtaposition between the [economic] data and the strength of the economy, but because prices are still rising and rates are still high people don’t feel good about the economy,” Rossell said. “It’s this confusing, riptide going in two different directions.”