The Seattle-area housing market cooled faster in recent months than any other spot in the country, highlighting the squeeze rising interest rates are putting on an expensive market.
That analysis comes from Seattle-based brokerage Redfin, which ranked U.S. metro areas based on how fast their housing markets are slowing down.
The 10 fastest-cooling markets include long-pricey areas, such as Seattle and San Diego, as well as cities like Phoenix that saw a big influx of new residents during the pandemic.
Las Vegas came in second place, followed by San Jose, Calif.; San Diego; Sacramento, Calif.; Denver; Phoenix; Oakland, Calif.; North Port, Fla.; and Tacoma.
“These are all places where homebuyers are feeling the sting of rising home prices, higher mortgage rates and inflation very sharply,” Redfin Chief Economist Daryl Fairweather said in the report.
Redfin’s analysis compared an array of factors in the nation’s 100 largest metro areas, including prices, sales, inventory and how many properties dropped in price while awaiting a buyer. The brokerage includes King and Snohomish counties in its measure of the Seattle metro area. The 10th-ranked Tacoma area is included in Pierce County.After two years of full-tilt growth in home prices, bidding wars and all-cash offers, recent months have brought a striking turnaround.
Last month in King County, pending sales were down about 27% compared with the same time last year, according to separate data from the Northwest Multiple Listing Service. Although King County’s $899,999 median home price was still up from 2021, it dropped nearly 10% from May to August.
Driving the downturn: rising interest rates, a lagging stock market and general uncertainty about the economy.
As the Federal Reserve looks to control inflation, rising mortgage rates are directly hitting buyers’ bottom lines – especially first-time buyers.
A 1% interest rate increase can reduce a home shopper’s buying power by 11%, said Curt Tiedeman, a loan consultant at Caliber Home Loans in Issaquah. The average rate on a 30-year mortgage passed 6% last week for the first time since late 2008, according to Freddie Mac. That rate is up nearly three percentage points from the start of the year.
“So people are losing 20, 25, 30% buying 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 at a 6% interest rate, according to Redfin.
That is driving some buyers out of the market altogether.
“In the first-time homebuyer market, if they’re barely qualifying for a home in the area they’re looking for, a little bit of a change in interest rate could just take someone out of the market entirely,” said Sally Li, a broker with Beacon Hill Realty.
Prices pushed one buyer searching for new construction in Everett “further and further north” until he finally decided to postpone his search, Li said.
“Even though prices have been stagnant … just the interest rate alone changed his trajectory,” Li said.
Inflation and the stock market are hurting homebuyers’ budgets, too, particularly in tech centers where many buyers rely on stock options from their employers.
Redfin’s analysis tracks various indicators comparing the housing market with the same time last year.
To show how the market cooled off, the report compares those indicators in August with the same figures in February because in many places, “that’s when the housing market reached a peak in terms of demand and competition while the number of homes for sale was at a low,” according to Redfin. More homes typically hit the market in the spring.
In Seattle, home prices were up 15% year over year in Seattle in February. In August, they were up just 7% compared with a year earlier.
The number of homes for sale was down 36% in February, indicating a competitive market for buyers. In August, inventory was up 78%. In February, agents dropped prices on 11% of listings. In August: 48%. Those are all signs the market is cooling.
Tacoma showed similar signs of a slowdown.
The median home price was up 16% year over year in February and 7.5% in August. While 87% of Tacoma-area homes were off the market within two weeks in February, that figure was just 39% in August.
With fewer buyers competing for every home, houses are sitting on the market longer. Sellers are dropping prices and chipping in on closing costs. Buyers are able to hold on to their right to an inspection and other contingencies.
That all represents what Tiedeman called a “trade-off” for buyers today: higher rates, but more leverage over sellers.
With interest rates still ticking up, even those who can qualify 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 need to go there.”
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