At what point will mortgage interest rates peak? That’s the million-dollar question and the answer is closely tied to the government’s ability to stem inflation, which makes the cost of our question closer to $1,082,000.
Seriously though, there must be a ceiling to rising rates that have all but extinguished a robust housing market.
While investors of mortgaged securities help dictate their interest rates, the Federal Reserve is behind the scenes influencing the overall lending environment. The Fed funds rate, which banks charge one another, is the foundation for other rates such as for auto loans and credit cards. The inter-bank rate stands at about 3.1%, coincidentally the exact figure that Freddie Mac reported at the start of 2022 as the average mortgage rate in the U.S.
Ten months and five Fed rate hikes later, mortgages are being offered at an interest rate that is more than double from January. We are now seeing “7s” in front of most rates to new mortgage consumers – a figure not seen since April 2002 – causing applications for new loans to hit a 25-year low this month. (WTH!? may be the better million-dollar question.)
We are all sensitive to rising interest rates, particularly when attempting to finance the largest purchase of our lives. How long can this go on? Many economists believe the Fed will keep raising short-term rates until it reaches about 4.6%, another 1.5 points away, but there are some experts – former Treasury Secretary Larry Summers among them – that believe to fully remedy rising inflation the Fed must be more aggressive and target its rate in a 5.0%-5.5% range.
If interest to finance a home is roughly twice the Fed funds rate of today, does that mean mortgage rates could hit double digits? I’m not going to answer that – my crystal ball is broken – but if some economists had their way, it would be a definite possibility for 2023.
What is certain is that the Fed continues to have its foot firmly pressed on the pedal. The central bank will continue to increase short-term rates – one of its only influential economic levers – until it sees inflation get within reach of its inflation target of 2.0% from today’s U.S. figure of 8.2%. So, we have a long way to go.
“The Fed is determined to cool inflation, and they’re willing to throw housing under the bus to do so,” Devyn Backman, senior researcher at John Burns Real Estate Consulting, told realtor.com. “When you raise [mortgage] rates to the point they’re at today, it breaks the back of housing.”
If there is a silver lining for those in the market for a home, it’s that prices should fall as demand eases. Markets big and small will be undergoing a price recalibration for several months as the supply/demand ratio rebalances.
In a report issued this month, Wells Fargo’s economics team forecast median U.S. home prices will decline 5.5% in 2023 for single-family homes. Mark Zandi, chief economist at Moody’s Analytics, is far more bearish, predicting prices will fall about 10% nationally over the next 12-18 months if the country avoids a recession (which is unlikely) and drop roughly 20% by 2024 if the U.S. falls into a recession. He believes our three-county area is about 25% over-valued. Stunning!
“While this [housing] market correction could be fairly mild, I cannot dismiss the possibility of a much larger drop in demand and house prices before the market normalizes,” Christopher Waller, a member of the Federal Reserve Board, told an audience early this month. That’s the first time a Fed official has acknowledged the U.S. housing market is experiencing a “correction,” defined as a 10% price drop from its most recent peak. We are nowhere near that! Waller went on to say this adjustment is in no way like the horrific housing/financial crises of 2007-2010.
This year’s housing slowdown intensified in the summer, with existing single-family-home sales off 20% in the U.S. from a year ago and down 32% in King County. Our market cooled faster than any other in the nation, according to one report. Total U.S. homes sales are expected to drop 18% this year compared with 2021 to 5.6M units.
Tech hubs like San Francisco, San Jose and Seattle suffered a deep blow to home-purchasing power as employees investing in their publicly traded companies experienced sharp declines in their retirement accounts – a common resource for their home down payment. This is especially true in the tech sector, where stock values have fallen by as much as 60% for Meta (Facebook), with other local employers not faring much better – Amazon stock down 30% year to date, Microsoft off 27%, Alphabet (Google) 28% lower and Expedia down 48% (through Oct. 10 U.S. trading).
At least buyers will have more options and time to weigh their decision to purchase a home – but at what cost to the bottom line? An example from realtor.com showed that the monthly costs on a 30-year, $400,000 mortgage with a 20% down payment rose by $569 this year as interest rates jumped three full percentage points. Typical King County mortgages are about $800K and we are now closer to a rate increase of four percentage points from the start of the year.
“It’s mind-blowing,” Danielle Hale, chief economist at realtor.com, was quoted by The New York Times. “I can’t tell you how many times I’ve thought, ‘I’m so glad I’m not trying to buy a home right now.’”
The next 12-24 months are likely going to be quite a challenge for prospective buyers. To slightly misquote Bette Davis from her role in All About Eve, “Buckle up, it’s going to be a bumpy ride.”
TREATING YOURSELF EVERY DAY
Dining out. Theme parks. Concerts. People love experiences to fill their memory bank and social media feed – and real estate developers are listening.
Residents want to enjoy memorable moments within their community, according to research from The New Homes Trends Institute. They want curated experiences and services that include:
- Concierge and rental services
- Hello Alfred is a personal-assistant service that employs professionals to take on tasks like laundry and pet care.
- Amenities that facilitate working from anywhere
- Condos, apartments and the like offer co-working space, including conference rooms and telephone hubs, as well as free WiFi everywhere, from the rooftop to the courtyard.
- Local community support
- Some buildings are too small to include a proper fitness center or pool. They are partnering with a nearby sports facility to offer residents discounted memberships, a win for the business and savings to the building’s budget.
- Experiential moments
- A host of luxury condos try to give their residents experiences that go above and beyond traditional services. In Seattle, residential communities employ Columbia Hospitality to run their day-to-day concierge services, with residents receiving member-level access to the historic Lodge at St. Edward State Park, Chateau Ste. Michelle (CSM) winery, and Salish and Semiahmoo resorts. There is also a wine club that provides special vintages from the CSM wine cellar.
The comforts of home now go beyond the four walls. Communities are pushing the boundaries for their residents who seek more than just a place to live but a place to experience life.
BY THE NUMBERS
>> About six out of 10 Hispanic American buyers are searching for their first home, nearly double the U.S. home-buying population at large (34%). That’s according to a survey of 1,002 Hispanic Americans by The National Association of Realtors®.
>> Amazon’s Seattle properties have a value of $3.4B, according to information from the King County Assessor’s Office. The company owns or leases more than 40 buildings across South Lake Union, Denny Triangle and downtown Seattle for its approximately 60,000 city employees.
>> Even while Washington ranked high nationally for its economy (4th) and quality of life (9th), the state got dinged for affordability (37th) and safety (48th) in rankings announced by WalletHub. That left Washington with a 26th overall ranking. Massachusetts and New Jersey were at the top of the Best States to Live In list. Mississippi finished last.
>> Some 420,000 new apartment units will be added to the U.S. supply in 2022, according to an August report from leasing platform RentCafé, which forecasts 15,300 new units this year in the Seattle region. It will mark the first time in exactly 50 years that America will surpass 400,000 new apartment homes in a year.
>> Seattle ranks 13th among big U.S. cities for widest renter/wage gap among Millennials, according to a study from Filterbuy. The Emerald City offers 1-bedroom rents at an average of $1641/month, while Millennials earn an average annual income of $47,100 – a gap of 27%. The study says Seattle Millennials need to earn $64,840 to comfortably afford that 1-bed home, and 32% of residents in our city are Millennial renters. The Los Angeles/Anaheim area has the widest rental/income gap of 50% for Millennials ($1814/month vs. $36,649/year), with Miami/Ft. Lauderdale ranked second (40%).
>> A full 91% of all mortgage holders in Washington are paying interest at or below 5%, according to a Q1 federal study. Homeowners in the state are paying their mortgages at an average interest rate of 3.6%. That compares to national averages of 85% and 3.8%, respectively. A separate survey (paywall) reports that 64% of existing homeowners with a mortgage will not purchase a home with an interest rate above 5%. Rates are around 7% today.
>> A real estate data company claims King County is the least vulnerable to today’s economic challenges in the nation among areas with populations of a half-million or more. The Q2 info from ATTOM Data Solutions measured risks such as home affordability, foreclosures and unemployment, which is below 3% in King. Counties in and near Chicago and New York City were seen as the most vulnerable to today’s economic headwinds.
OCTOBER HOUSING UPDATE
New listings and housing supply are on the rise as buyer activity took a dive in September, based on the latest assessment of data from the Northwest Multiple Listing Service.
The number of new listings in the previous month and remaining on the market as of Oct. 1 were both up about 10% month-to-month. There are now essentially double the number of homes available across King County than this time last year. However, the number of buyers taking advantage of the additional selection is down about 35% year over year (YoY) based on September pending and closed sales.
The housing cooldown may best be displayed with a look at the Eastside market (excluding Mercer Island and fringes), where homes sold as recently as February at an average of 23% above the seller’s original asking price. Today, the average is 6% below the original price, as this 10-year chart shows:
The median price of all homes sold in September across King was $799,000. That’s down a modest 2% from August and up 7.3% YoY. Prices on the Eastside trended up 1.3% in the past month and 7% for the year to $1.2M. However, Seattle prices were 3.4% lower for the month and up 6.1% YoY to $812,000.
Median prices for all homes (single-family, townhomes, condos) are gyrating in some areas. The area comprised of Redmond and Carnation is seeing median prices up 41% ($1.31M) YoY and 26% ($1.575M) in Kirkland, while they are down a dramatic 12% ($560,000) on the year in downtown Seattle and Belltown.
“Our view is that you will see – and we’re seeing it right now – home prices will fall even though supply levels are not ripping higher. And I think that’s an interesting thing that is now starting to surprise a lot of people,” Rick Palacios Jr., head of research at John Burns Real Estate Consulting, told Fortune about the national picture. The local picture is less definitive.
The single-family market in King County is riding an up-and-down wave, depending on the area.
Seattle experienced a 32% (1031) monthly increase in new listings but a 15% (558) decline in homes going under contract, as median prices fell 2.9% ($900,000) since August and remain 5.9% higher compared with last year. The figures were slightly less volatile on the Eastside, where new listings gained 17% (800) for the month and Pending sales fell 14% (542), while median prices were essentially flat ($1.35M) since August and up only 3.1% from this time last year.
However, the Eastside communities of Redmond and Carnation saw median prices for single-family homes rise 34% ($1.55M) YoY, as prices plummeted 33% ($2.43M) in the same period for the area comprised of downtown Bellevue, Medina and Clyde Hill – albeit based on half the number of sales (15) vs. 2021.
Single-family-home prices in King have dropped 12% since the yearly peak in May ($1M), 11% in Seattle from its April high ($996K) and a whopping 27% in Bellevue since prices peaked in March ($2.25M).
The market is slowing by one key measure – cumulative days on market. A home in the broader Seattle-Tacoma region sits for a median of 40 days before going under contract, up from 29 days a year ago. The 11-day increase ranks us 11th among top U.S. metros for largest yearly increase, according to realtor.com.
The supply of homes is inching higher in most areas. Across King County, there is 2.0 months’ inventory for all homes on the market and in the single-family category. The figures are similar for Seattle (2.2 months) and the Eastside (1.9). Notably, there is now 4.9 months’ inventory in downtown Bellevue, Medina and Clyde Hill – not surprising for an exclusive section of the county where the potential buyer pool is small. Homes remain scarce in Bellevue east of I-405, where only 1.3 months (or 40 days) worth of inventory is on the market.
For the first time in Seattle, home prices are in negative territory compared with 12 months ago – among condo homes, that is. After falling 4% from August to September to $499,000, the median price of an Emerald City condo is 1.2% lower than a year ago with 2.4 months’ inventory. Condo prices are still 3.5% ($483,000) higher across the county YoY but the figure continues to narrow each month. Prices on the Eastside are up 2.5% ($580,000) YoY. Condo inventory for King County now stands at 2.0 months, up from 1.7 last month.
In addition to King County’s 2.0% month-to-month median price decrease on all home types, to $799,000, Pierce County saw the sharpest drop – 4.4% from August to September ($526,000). Kitsap median prices fell 2.2% ($535,500) since August and Snohomish prices were unchanged ($700,000) for the month. Single-family prices in King lost 2.8% of value in a month ($875,000) and Pierce prices fell 3.1% ($538,000), with Snohomish down 2.0% ($735,000) and Kitsap off 1.8% ($539,997). Year-to-year, single-family median prices remain higher, led by an 8.9% rise in Snohomish, 8.0% higher in Kitsap, up 6.2% in Pierce and 6.0% in King.
CONDO NEWS
I like it when a condo developer and its sales team collaborate on a creative offer for prospective buyers. There is nothing like a win-win, clearing available inventory while opening new doors for people in the market for a new-construction home. There are two examples of that this month:
>> Daniels Real Estate, the fine folks behind Gridiron, is giving people a great opportunity to buy – eventually. They are offering a rent-now, buy-later promotion which is just what you might think.
Rents are rising across Seattle – up 9.8% by one unofficial measure between January and August – and the cost of living is skyrocketing at nearly the same rate. To get ahead of this, Gridiron is providing a solution for today and tomorrow.
The promotion allows a qualified buyer to lease a home at Gridiron, the 107-unit residence in the shadows of Lumen Field, that puts 20% of the rent toward the down payment on the unit. So, $600 a month would go toward the future home purchase on a $3,000 monthly rental. To go one step further, renters lock in on the price of the home today rather than possibly facing a higher figure in a year.
What an inventive and affordable way to attract people to the beauty and vibrancy of the community, an area that is undergoing major improvements. By the end of the year, the city is expected to complete a landscaped, pedestrianized promenade across from the door’s entrance along Railroad Way South (apparently soon to be renamed South Charles Street) as part of a larger revamp of the area.
The 11-story, triangular building is an architectural marvel, with seven floors added to the four that sat on 1st Avenue South since 1903 and was home to Johnson Plumbing Supply Co. Today, Gridiron is in the middle of the action, a short walk to Mariners, Sounders, Reign and Seahawks games. And the amenities within the community are great, including a rooftop with kitchen and dining areas as well as outdoor lounges and BBQ grill.
Homes start in the upper $500s for a 1-bedroom unit, with 2-bedroom residences also on the market. Rents can be had for as low as $2750/month. Parking for new owners is $75K extra for qualified homes. The building is located within the city’s LID assessment area, which is helping to pay for the massive Seattle waterfront project and about two years from completion. Interested in having a look at Gridiron? I would be happy to give you a tour!
>> Another Daniels property, Graystone, is making a dramatic statement by offering financial assurance and discounts to buyers. There are home warranties but this is much better.
The Graystone sales team is offering a four-layer package of incentives to ensure buyers are getting a fair offer at the best terms. This includes an appraisal contingency to virtually guarantee the purchase is at market value. When working with Graystone’s preferred lender, buyers will get a long-term lock on the interest rate plus the option to drop the rate within the first two years of ownership should prevailing rates fall.
Those two layers are unprecedented in this market, but the sales team goes two steps further. There is also assistance for renters who wish to buy but face early termination fees on their lease. Plus, HOA dues will be waived for new buyers through 2023. Wow!
Think of the savings. Think of the friction-free purchase. Think of the opportunity to live in a new high-rise in leafy First Hill in 2023.
A tip of the hat to the Daniels Real Estate team for bringing fresh ideas and meeting buyers where they can’t say “no” to a new home. I am here to show you the available homes and partner with you on a purchase. Give me a call!
LUXURY LIVING
As we head into the final months of the year, one would expect the luxury market would “fall” into hibernation. Not in 2022. We are still seeing stunning homes come on the market.
Take this grand, 8-bedroom, 5.25-bath, 7490 sq. ft., 2-story home (with basement) in Seattle’s Capitol Hill neighborhood. Design hints of the past blend seamlessly with custom contemporary interiors to bring forward a home well worth living in. Welcome to the Seattle White House – a property like no other in our gleaming Emerald City! Classic white columns stand guard from the front. The interiors are warm and welcoming. The 1906-built home is being sold by the founder of a well-known Seattle marketing firm. Under his ownership, the home was a convening space for many causes, including Washington’s successful marriage-equality campaign. List: $5.975M ($798/sq. ft.).
Most buyers want a view that will give them a sense of the outdoors while still enjoying the comforts of home. Here’s a 4-bed, 3.25-bath, 3400 sq. ft., 2-story home (with basement) that delivers on many fronts. Check out the wall of windows looking East toward Lake Sammamish or the bold wood-beam construction with NW contemporary accents. Two outdoor decks – for eating, grilling, sunbathing and snoozing. Waterfront and mountain views without the premium price. List: $2.9M ($853/sq. ft.).
From one Bellevue lake property to another, here’s a 3-bed, 2.5-bath, 3167 sq. ft., 2-story residence that kisses Lake Washington in the Newport Shores neighborhood. The home features dramatic hardwood ceilings and floors, windows forever and unconventional shiplap-styled kitchen cabinets and island. The canal life is special with 90 feet of protected moorage along the Skagit Key canal. A truly special place to live. List: $5.4M ($1705/sq. ft.)
From one side of Lake Washington to the other, how about a 5-bed, 5-bath, 5770 sq. ft., multi-level house in the Madrona neighborhood of Seattle? Absolutely! This home could easily feature in Architectural Digest for style and location – contemporary, the finest materials, outdoor pool, solar-paneled roof and stunning views. One of a kind! List: $5.2M ($901/sq. ft.) NOTE: The home went under contract within the past week, sorry!
Looking for something bigger but within a lower budget? May I suggest this newly constructed 6-bed, 4.75-bath, 4550 sq. ft., 2-story home (with basement) in Seattle’s Seward Park neighborhood? If you don’t mind seeing the neighbor’s house nearby, there are peek-a-boo Lake Washington views and stunning, modern designs inside and out. Check out the rooftop deck! List: $2.95M ($648/sq. ft.)
What else is happening in and around your Seattle?
Seattle Queer Film Festival, now through Oct. 23
More than 100 films from 27 countries will be showcased during the 27th annual Queer Film Festival, which takes place across five Seattle area theaters. Beyond the international film event, the festival features live podcasts, meetups, parties and an art gallery. Attend in person or catch some film favorites virtually. Support the arts! Tickets.
Festival of Lights, Oct. 22
Family and friends of the Indian community celebrate the victory of light over darkness, good over evil, and knowledge over ignorance at Diwali: Lights of India. Enjoy folk and classical dances, face painting, traditional (and delicious!) food, art shows and craft making in a harmonious moment for Seattle culture. Check it out at the Seattle Center Armory, 305 Harrison St., in the shadows of the Space Needle. Free. (The official holiday is on Oct. 24.)
Shakespeare in Seattle, Oct. 25-Nov. 20
Seattle Shakespeare performs Macbeth, the story about a Scottish king who is betrayed by a friend in a tale of temptation, ambition and more. Taking place at Center Theatre, 305 Harrison St. Plus, a special preview on Oct. 25 is “pay what you will.” Tickets.
Going Green, Oct. 29
Want to learn more about sustainable homes? Green Building Slam offers 10 lectures from innovative architects and builders, lasting 10 minutes each with 10 slides. The event takes place at Town Hall Seattle, 1119 8th Avenue in First Hill. Learn more about this live/virtual hybrid event.
Geek Girls Unite, Nov. 5
GeekGirlCon creates a community for women in science, technology, arts & literature, comics, and game design at the Seattle Convention Center’s Arch. Proof of Covid vaccination and masks are required, according to a May press release. Tickets.
Veterans Day
Many communities across King County will mark Veterans Day with major events. Auburn will hold a parade with military vehicles, marching bands and floats along East Main Street on Nov. 5, 11am-2pm. Bellevue will recognize our heroes of the armed forces with a nine-gun salute, bagpipes and the playing of taps in a ceremony at Sunset Hills Memorial Park, 1215 145th Place Southeast on Nov. 11, 11am.
Seattle Auto Show, Nov. 10-13
Electric vehicles and charging stations will be featured at this year’s Seattle International Auto Show. Visit, learn and take a test drive! It will all take place at the Lumen Field Event Center. Various hours. Tickets.
Events are subject to change. Please check with venues to confirm times and health-safety recommendations.
In case you missed it….
Living the Dream is both the name of this newsletter and my real estate blog.
In September, we covered a variety of topics. Most notable is news that the Northwest Multiple Listing Service has made a historic change in how real estate agent/brokers are compensated. The policy change took effect earlier this month. Read all about it here and contact me with your questions.
We published two mortgage-related stories. One explains how to cancel your mortgage insurance while the other article announces a new program that allows buyers to purchase a home with cash through the help of a John L. Scott partner.
And, finally, we dive into how to overcome student debt and afford to buy a home. It can be done!
Thanks for reading and please forward this email to two of your friends who may appreciate this newsletter, researched and written by your friendly real estate broker – me!
Will