Improving housing inventory, rising costs may bring some 'normalcy' to Western Washington market
KIRKLAND, Washington (May 5, 2022) - Rising interest rates and inflation, coupled with a slight improvement in inventory, may bring some normalcy to Western Washington's frenzied housing market suggesting some brokers with Northwest Multiple Listing Service.
"The Puget Sound housing market has shifted down several levels of hotness in most areas and is more in alignment with the strong market we saw pre-pandemic," stated J. Lennox Scott, chairman and CEO of John L. Scott Real Estate.
Commenting on a new Northwest MLS report summarizing April activity, Scott noted a "slight increase" in unsold properties, adding, "Not all homes are selling within the first week on market." He believes the "intensity adjustment means multiple offers will not be as commonplace as they've been in the last two years." He also indicated premium pricing (above asking price) is softening as well. He expects the "normal seasonality in the real estate market will be more pronounced, bringing a bit of normalcy to home buyers and sellers," but believes there will still be an "elevated buyer focus on each new listing."
Last month's sales of single-family homes and condominiums across 26 counties in the report had a list price to sales price ratio of 107.8%, which was down from March when it reached a 12-month peak of 108.2%. A year ago, the ratio was 106.6%.
The latest MLS report showed a mix of positive and negative numbers.
Member brokers added 11,681 new listings of single-family homes and condos during April, the highest number since last July when 12,916 listings were added, prompting some upbeat comments: "Did you hear that? It's the sound of happy buyers in all areas other than King County celebrating last month's jump in active listings as it means they now have more homes to choose from," proclaimed Matthew Gardner, chief economist at Windermere Real Estate.
Only two counties, King and Jefferson, had year-over-year drops in inventory. "Unfortunately for King County buyers, the area is still desperate for inventory and competition is as fierce as ever," remarked Gardner.
At month-end, the selection of homes and condos in the database totaled 6,514, the highest level since September 2021 when there were 7,757 total active listings.
Notably, the number of new listings (11,681) surpassed the number of pending sales (9,760), to help boost inventory. Pending sales were down about 7.8% from a year ago and down 3% from March.
Commenting on April's improvement in total inventory compared to a year ago, James Young, director of the Washington Center for Real Estate Research at the University of Washington, suggested "This is evidence that interest rates are having a cooling effect on some parts of the suburban market and along the I-5 corridor."
Young also noted a sharp decline in condo inventory in King County from a year ago - down about 35% countywide, with even greater shrinkage in Southwest King County (-49%) and the Eastside (-42%). With a limited selection, sales in those areas also plunged, while prices increased. For condos system-wide the median price on last month's sales was $485,000 (up 15.5% from a year ago); in King County, where more than 60% of sales occurred, YOY prices rose 12.6%, from $460,000 to $518,000.
Area-wide prices for single-family home sales (excluding condos) in King County also increased, climbing nearly 20% from a year ago, from $830,000 to $995,000.
Closed sales of homes and condos slid from a year ago, from 8,791 to 8,344 for a drop of around 5.1%.
"We are starting to see signs of impact from the significant rise in mortgage rates earlier this year, such as an increase in active listings and months of inventory creeping higher, but the full impact will likely not be felt for a few months," said Matthew Gardner, chief economist at Windermere Real Estate.
Commenting on the growing inventory of single-family homes (up 27% from a year earlier), Young suggested that higher-priced homes requiring a mortgage "are feeling some heat from recent interest rates."
The NWMLS report shows there were about three weeks (.78 months) of inventory of single-family homes and condos combined at the end of April. By this metric, that is the highest level in nearly 18 months. MLS data show there were .80 months of supply in October 2020.
Despite the improving inventory, and in spite of rising interest rates, brokers report brisk activity and are not seeing prices ease much.
"One thing that has not been impacted by rising financing costs is home price growth," Gardner said, pointing to double-digit gains in nearly every county, "including a whopping 27% in Snohomish County, the highest by far in the four-county Puget Sound region."
Dean Rebhuhn, the owner at Village Homes and Properties, echoed Gardner's observations. "Even with rising mortgage rates, inflation and high gas prices, the housing market remains strong with prices continuing to increase," he commented, adding, "Inventory is improving in most counties giving buyers more choices and making sellers a little more flexible in considering financing and inspection contingencies." Rebhuhn also reported demand continues to create multiple offers on homes in key locations and on median-priced properties.
Gary O'Leyar, designated broker/owner at Berkshire Hathaway HomeServices Signature Properties, also commented on rising rates, suggesting they could present more opportunities for hopeful buyers that have been shut out of the previous market. "It may seem contrary to good news for prospective home buyers, but the increase in interest rates may have a positive side. We are seeing signs that the peak 'zeal' of the competitive offer frenzy may be leveling off a bit. While we might have seen 10 offers on an active listing, now we may see only five, or sometimes fewer."
O'Leyar is not expecting a dramatic change in the regional market but believes there could be a "leveling off" from the double-digit-plus year-over-year appreciation.
Another industry leader, John Deely, also reported high demand, saying increases in interest rates "haven't appeared to cool off the market quite yet." Deely, executive vice president of operations at Coldwell Banker Bain, pointed to statistics for single-family homes, noting total residential inventory in April was up in every county served by NWMLS except Jefferson - "and up by double digits in every county except three: Clark, Jefferson, and San Juan."
"Median prices on single-family homes have been skyrocketing so far this year with prices for sales in King County just shy of $1 million in April," he remarked, noting that figure reflects an increase of more than 28% (+$220,000) since January.
Brokers in Kitsap County report robust activity in all areas. "Kitsap sales remain brisk as we increase inventory and sales," reported Frank Leach, designated broker-owner at RE/MAX Platinum Services.
Open houses are attracting "huge turnouts," with accepted offers averaging 6.2% over asking prices.
The MLS report shows listings of homes and condos in Kitsap County are up nearly 36% from a year ago. Pending sales improved 6.9% YOY, with closed sales climbing 9.4%. The median price has increased more than 15% from twelve months ago, from $485,000 to $558,500.
Leach said new construction in Kitsap County is "racing forward" in all residential sectors. He described land sales as "flying off the shelf," but detected a softening of condo prices (down about 10% YOY) as inventory improved to 1.5 months of supply at month-end.
Young singled out the South Puget Sound region encompassing Lewis, Mason, and Thurston counties as showing some of the best values in median house prices. NWMLS figures show the median price of sales during April in Lewis County was $389,000; in Mason County, it was $420,000; and in Thurston County, it was $510,000. "It will be interesting to see how interest rates influence these markets as the search for value among first-time buyers continues," he remarked.
With mortgage interest rates drifting upward in anticipation of the Federal Reserve's hikes in its baseline interest rate, some brokers recommend quick action by prospective home buyers.
"We will not likely see interest rates back to 3%. Never before has it been more important to get pre-approved and get serious about finding a home as now," stressed Leach.
"Owning real estate is a hedge against rising inflation," emphasized Gardner, the Windermere economist. "Homeowners with a fixed-rate mortgage will always have the same monthly payment, even as other costs rise," he explained.
Lawrence Yun, the chief economist at the National Association of REALTORS, noted affordability "greatly worsened" in the first quarter of 2022, pointing to sustained price appreciation and higher mortgage rates. NAR reported the monthly mortgage payment on a typical existing single-family home with a 20% down payment rose $319, or 30%, from one year ago, to $1,383.
Yun said price declines are "unlikely," but he expects "more pullback in housing demand as mortgage rates take a heavier toll on affordability. Declining affordability is always the most problematic to first-time buyers who have no home to leverage, and it remains challenging for moderate-income potential buyers as well."
Northwest Multiple Listing Service is a not-for-profit, member-owned organization that facilitates cooperation among its member real estate firms. With more than 2,300 member firm offices and 30,000 brokers across Washington state, NWMLS is the largest full-service MLS in the Northwest. While based in Kirkland, Washington, its service area spans 23 counties and it operates 20 local service centers.