The video below from Matthew Gardner, Windermere’s Chief Economist, refers to the effects of constricted inventory levels on the national housing market in a higher interest rate environment. Review the localized numbers that I gathered that pertain to King and Snohomish Counties and then check out what he has to say about the national trends.

Overall, inventory has been tight in 2023! Many people made moves in the pandemic-fueled market and are deciding to stay put. They utilized the lower interest rates to secure their long-term home and don’t see a need to move anytime soon. Did you know the average person stays in their home for 10 years?

Others are not completely satisfied with their homes but feel attached to the lower rate and are pushing through the discomfort until rates settle. Some are deciding to come to market because their homes do not fit their lives anymore and some are bucking the rates and getting creative with financing. The buyers working the creative financing route with rate buy-downs will be rewarded when rates lower and prices go up.

Year-to-date new listings in King County are down 30% over 2022 and down 37% in Snohomish County. Closed sales are down 27% over 2022 in King County and down 27% in Snohomish County. Even though there have been fewer new listings year-over-year, the closed sale percentage is tracking more favorably which demonstrates buyer demand. This is why inventory is tight. In August 2023 there were 1.3 months of inventory in King County and 1.1 months in Snohomish County. This illustrates a seller’s market.

Closed sales peaked in 2021 in both counties at 20,132 in King County and 8,663 in Snohomish County. As we venture away from these outlier pandemic years, consumers are wrapping their heads around the changing environment. Year-to-date, King County has had 16,069 closed sales and 5,344 in Snohomish County. Year-to-date, King County is pacing slightly higher than 2019, which was a normal market prior to the pandemic and Snohomish County is lagging behind by just a bit.  

The pace of inventory has helped stabilize prices and created price growth since the start of 2023. Buyer demand exists because people’s lives change and we have the Millennial generation out in full force. If your life is leading you to consider a move, please reach out. Please do not rely on the noise in the media, they will lead you astray.

I can help you dig into the data and devise a plan that relates to YOUR life. With equity levels astoundingly high (over 50% of homeowners in the U.S. have over 50% equity), moves are being made with great success. For buyers, the rates can be overcome with some creativity, lived with for now, or you can set a benchmark for when you’re ready. If you are curious about how today’s market relates to your goals or want to make a plan for the future, let’s talk! It is always my goal to help keep my clients informed and empower strong decisions.

Lately we have talked about life changes leading to real estate moves. Sometimes moves are brought on by joyful advancements in life and sometimes they are motivated by hardship. Then there are times when your actual house just doesn’t fit your life anymore and it is time for something different. Whatever might be calling someone to make a move, they also have to assess the affordability.
 
There are three aspects to affordability: price, interest rate, and income. Price and interest rate will determine your monthly payment, and your income will provide the means to maintain and build your investment. One way I have been able to help my clients strategize affordability with higher interest rates are some creative financing options.

Most often a home buyer will procure a home loan with a 30-year term and the current interest rate. In the month of August, the 30-year conventional interest rate averaged 7.25%. While 7.25% is reflective of the average over the last 30 years, it is 2-3% higher than what we have experienced over the last 5 years. According to several experts, rates are predicted to decrease as we finish out 2023 and head into 2024. That also means that it is very likely prices will increase when that happens.
 
I have helped some of my clients overcome the higher interest rates and secure today’s prices by helping them arrange with their lender an interest rate buy-down. Sometimes we have even been able to get the seller to financially assist in paying for the buy-down. There are two types of buy-downs: a permanent buy-down and a temporary buy-down.
 
A permanent buy-down requires about 3% of the purchase price to buy the rate down by a point for the 30-year term of the loan. A good rule of thumb to remember is that every 1-point in rate equals 10% in buying power. For example, if the rate is 7% and you are qualified for a home at $800,000, if the rate went down by 1 point to 6% you could now afford $880,000 and have a very similar payment. Another way to look at this is simply the monthly payment itself. An $800,000 purchase with 20% down with a 6% interest rate would save a buyer $420.82 a month vs. the payment at 7%.
 
A permanent buy-down is a useful tool and so is a temporary buy-down. It is actually one of the most powerful tools in today’s market. It costs far less than a permanent buy-down and with rates predicted to decrease over the next 12-18 months as inflation settles, you could easily find yourself in a position to refinance.
 
Here is an example, let’s say you are shopping for a house and have the same $800,000 budget and a 20% down payment with today’s rate of 7%. The monthly principal and interest payment would be $4,257.94. You could do a 2-1 buydown (2 points lower in year one and 1 point lower in year 2) which would have your payment in year one be based on an interest rate of 5% with a monthly principal and interest payment of $3,435.66 – a savings of $822.28 a month. For year two, the monthly principal and interest would be based on 6%, resulting in a monthly payment of $3,837.12, a $420.82 savings. The total savings in monthly payments with the 2-1 buy-down over the two years would be $14,917.18.
 
The roughly $15,000 in monthly payment savings is paid upfront at closing and in some cases paid by the seller. The buyer still needs to qualify based on the 7% interest rate as the payments will convert to the payment based on the 7% in year three moving forward. The strategy here is to never have the payment increase to 7% amount because the buyer plans to refinance when rates come down and will permanently fix their rate below 7%. A bonus is that if the entire $15,000 credit has not been used yet, in some cases those funds can be applied towards the refinance.
 
This strategy has been effective in helping buyers secure a monthly payment that is more affordable so they can make a move now based on life’s needs and wants. It also helps them secure today’s prices. If we find a home that has had a little longer market time, a home seller is likely to assist with the $15,000 credit vs. reducing their price by 3% to accommodate a lower payment for 30 years. The temporary assistance in reducing the payment for 1 to 2 years is a viable tool for both the buyer and seller to create a win-win.
 
I felt it was important to bring these options to light and to encourage people to not just take today’s market at face value. Creativity, collaboration, and calm have led to some of the most rewarding sales this year for both buyers and sellers. When people logically work together to accomplish moves in an environment that seems difficult, they find success. Ultimately, I am here to help my clients match their real estate to their lives despite where the rates are today.
 
I love rolling up my sleeves and creating a plan to help my buyers and sellers accomplish their goals. It is my mission to help keep my clients informed and empower strong decisions. If you or someone you know are curious about how today’s market matches your needs, please reach out.

There has always been a direct correlation between interest rates and home prices. The rule of thumb has always been when rates go up prices go down, and vice versa. This was temporarily proven true in the summer of 2022 when rates quickly rose by 2% (3.5%-5.5%) over 5 months. It created a price correction in the second half of 2022 as buyers retreated from the market due to affordability. One should note that price acceleration was rapid from May 2020 to May 2022 and in that two-year period prices grew upward of 50% in King and Snohomish Counties. That was an unsustainable pace. In all honesty, this was inflation’s role in the housing market, and increasing the rates was the Fed’s way of getting control.

While there was a correction from May 2022 to January 2023, since then prices have started to grow again despite the rates hovering in the 6-7% range. In fact, the median price is up from the bottom (Jan/Feb 2023) by 13% in King County and 9% in Snohomish County. Further, the median price in July 2023 was even with July 2022 in King County and down by only 2% in Snohomish County. This is a sign of price stabilization. Historically, the impact rising rates have on prices year-over-year is not negative. We are in the midst of proving that same theory.

Believe it or not, the higher rates are keeping prices stable because it is limiting the available inventory for sale. You see, there are plenty of buyers out looking for homes right now, and inventory levels are tight because potential sellers are waiting to make a move because they are holding on to their low rate. Our job market is good, we have people moving to our area and the millennials are out in full force searching for their first homes.

There are two interesting phenomena going on with potential home sellers right now. First, according to ATTOM Data, 68.7% of homeowners have at least 50% equity and only 2.1% have negative equity. This is the number one indicator that we are not in a housing crisis or bubble. Second, according to FHFA, 70% of homeowners with a mortgage have a rate 4% or lower. This is causing people who are no longer happy with where they live to stay a bit longer because they don’t want to give up their payment just yet.

Here’s the deal though, housing is a reflection of life! According to the US Census, 66% of homeowners would like to upgrade to a nicer home with features that better match their lifestyle, and 45% would like to move to a home to better match the changing size of their household. Life changes motivate moves! Many people are waiting out these life changes until rates come down so they can better afford their desired transition. This has put downward pressure on inventory, limiting selection for buyers, hence creating price growth and stabilization.

So, what is going to happen when rates come down? Experts across the board predict that rates will recede as inflation gains control. This will be a gradual process over the next 12-18 months. The biggest indicator will be inflation reaching the 2% year-over-year mark. Once we hit this point, which we are close to, experts predict the Fed will be comfortable easing off the higher rates. This will cause more homes to come to market as the delta between the rate a homeowner currently holds and what they are willing to take on to indulge their desire to move, will become more attainable. Plus, as rates recede it will increase buyer demand. 

We find ourselves in a delicate dance with inflation, rates, inventory, and prices. Someone who desires a move has to consider the impact the rates can have on their payment. Many of these buyers are taking the leap and finding creative ways to offset the rate such as ARM financing, rate buy downs, or they are preparing to re-finance their purchase when rates come down. This way they will have secured a good price which is the basis of their loan.

So, do you stay or do you go? According, to the lyrics from the classic song from The Clash, “if I stay there will be trouble, but if I go there will be double.”  This is up to you to decide. Where I can help is to gather the data and help you analyze the market in order to empower you to make the best choice for you and your family. For some, the right time is now and for others, waiting a bit longer will be a good plan.
What I do know, is that when we hit the inflation rate that the Fed is comfortable with and they ease off of rates, the market will tilt. This will be a benefit for some and a challenge for others. In other words, there is not one right answer for everyone and that is where I think I have the opportunity to serve my clients best.

Helping people navigate the ever-changing market is a skill, an art, and a calling. I am here for it and find great satisfaction in helping people make big life decisions that help bring joy, solve problems, and make them money! My job is a huge responsibility and it is an honor to serve my clients. If you or someone you know are wondering about how today’s market conditions affect your goals, please reach out. We can dig into the data, assess your dreams and devise a plan.