The Seattle area housing market has cooled faster in recent months than anywhere else in the country, highlighting that the tightening on rising interest rates is putting on an expensive market.
That analysis comes from Seattle-based brokerage Redfin, which has ranked U.S. metropolitan areas based on how fast their real estate markets are slowing.
The 10 fastest cooling markets include expensive areas, such as Seattle and San Diego, as well as cities like Phoenix that saw a large influx of new residents during the pandemic.
“These are all places where homebuyers feel the sting of rising house prices, higher mortgage rates and inflation very acutely,” Redfin chief economist Daryl Fairweather said in the report.
Redfin’s analysis compared a number of factors in the nation’s 100 largest metropolitan areas, including prices, sales, inventory, and how many properties have fallen in price awaiting a buyer. The brokerage includes King and Snohomish counties in its Seattle metropolitan area measure. The Tacoma area, ranked 10th, is included in Pierce County.
After two years of full house price growth, bidding wars and all-cash deals, the past few months have brought a surprising turnaround.
Last month in King County, pending sales fell about 27 percent from the same period last year, according to separate data from the Northwest Multiple Listing Service. Although King County’s average home price of $ 899.9999 was still up from 2021, it fell nearly 10% from May to August.
Driving the recession: rising interest rates, lagging stock market and general uncertainty about the economy.
As the Federal Reserve tries to control inflation, rising mortgage rates are directly affecting the profits of buyers, especially those who are buying for the first time.
A 1% interest rate hike can reduce a home buyer’s purchasing power by 11%, said Curt Tiedeman, a loan advisor at Caliber Home Loans in Issaquah. The average rate on a 30-year mortgage surpassed 6% last week for the first time since late 2008, according to Freddie Mac. That rate has increased by nearly three percentage points since the beginning of the year.
“So people are losing 20, 25, 30 percent of the purchasing power,” Tiedeman said.
On a $ 775,000 home in the Seattle area, the typical mortgage payment would be about $ 3,300 with a 3% interest rate and $ 4,400 with a 6% interest rate, according to Redfin.
This is pushing some buyers out of the market.
“In the first-time buyer market, if they barely qualify for a home in the area they’re looking for, a small change in the interest rate could simply take someone out of business,” said Sally Li, a broker with Beacon. Hill Realty.
The prices prompted a buyer to search for new construction in Everett “further north” until he finally decided to postpone his search, Li said.
“Even though prices have been stagnant … only the interest rate alone has changed its trajectory,” Li said.
Inflation and the stock market are also hurting homebuyers ‘budgets, particularly in tech hubs where many buyers rely on their employers’ stock options.
Redfin’s analysis tracks various indicators by comparing the real estate market with the same period last year.
To show how the market has cooled, the report compares those August indicators with the same data as in February because in many places “it was then that the housing market peaked in terms of demand and competition as the number of homes in sales were at a low, “according to Redfin. More homes typically hit the market in the spring.
In Seattle, house prices rose 15% year-over-year in Seattle in February. In August, they increased by only 7% compared to a year earlier.
The number of homes for sale fell 36% in February, indicating a competitive market for buyers. In August, stocks increased by 78%. In February, agents lowered prices on 11% of their listings. In August: 48%. These are all signs that the market is cooling down.
Tacoma has shown similar signs of slowing down.
Average home prices increased 16% yoy in February and 7.5% in August. While 87% of Tacoma area homes were out of business within two weeks in February, that figure was only 39% in August.
With fewer buyers competing for each home, homes stay on the market longer. Sellers are lowering prices and increasing closing costs. Buyers are able to maintain their right to inspection and other contingencies.
All of this represents what Tiedeman called a “compromise” for today’s buyers: higher rates, but greater leverage on sellers.
With interest rates still rising, even those eligible for a loan may not be comfortable with the price. “Just because you can afford a $ 4,500 payment,” Li said, “doesn’t mean you really have to go there.”