The housing market is struggling to find its footing as high home prices collide with rising mortgage rates. As of today, the rate on a 30-year mortgage is above 7% after starting 2022 at 3.4%.
Buyers today are facing the worst housing affordability in decades. And remember that rising prices also require larger down payments--another hurdle for buyers entering the market today.
But rates alone are doing plenty to weaken demand, which is exactly what the Fed wants in its effort to bring down inflation, which was supercharged by years of low interest rates.
I surveyed the past five years of home prices + mortgage rates to determine what the typical Seattle-area home buyer's payment would be over time. At Seattle's peak price earlier this year of $1m, using the prevailing interest rate at that time (5.3%), the house payment increased by 48.6% YoY.
If that's not mind-blowing enough, consider that rates are above 7% as I write this.
King County prices down 12% from recent peaks
It's important to remember that 2021 was an exceptional year in housing, so when comparing housing data from this year, it's good to keep in mind that2021 is an outlier, not a benchmark.
Here's a look at the King County housing numbers through the end of September.
Prices: Home prices fell 2% MoM to $880K after peaking at a record high of $1M in June. Despite recent declines, home prices are still up 6.7% YoY, but I expect these gains to be erased in the months ahead (note: home prices typically fall in the winter, so some seasonal effects are at play here).
New listings: New listings jumped 15% month-over-month, but are still down 7% YoY. The "seller strike" is keeping a lid on new listings. Not surprising, right?! Sellers with record home equity and low mortgage rates have little reason to sell, especially when considering the cost of a new mortgage with a 6 or 7% interest rate today!
Time on market: Median days on market jumped to 17, up from just 6 days in September 2021. As homes sit on the market longer, the total number of homes for sale has more than doubled (+116% YoY) since this time last year.
The market doesn't feel great right now no matter what side of the table you're on. Sellers are disappointed with lower prices and longer market times, not to mention their next home will likely have a mortgage rate twice as high as their current one. Buyers aren't seeing prices fall to levels that make up for the shockingly high cost of borrowing.
This housing reset might hurt, but the high-flying pandemic housing market needed a break. The American homeowner has never been better off than today, so there's little risk of markets suffering massive losses like in the Great Financial Crisis when homeowners were forced to sell due to adjustable rate mortgage resetting at levels they couldn't afford.
It's never been more critical to seek thoughtful, personalized advice that takes your unique circumstances into account--both from your agent and your mortgage lender.
Please don’t hesitate to reach out if you want to catch up... :)
Best,
Chad