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2022: A Tale of Two Markets
In the first half, we rode the big 3-year pandemic-fueled wave in to shore. This was the end, for now, of rapid price increases, hyper-low inventory and eye-watering bidding wars for single family homes in Seattle and across the Eastside. (Condos had a wobblier ride through the pandemic than houses; you can read more about that in prior updates).
We all know by now that the Federal Reserve raised its mighty sword at the end of May, slowing the real estate market in record time. They raised rates seven times in the ensuing six months, racking up the highest and most rapid overall rate increase within a single year since the 1980s.
This was aimed at slowing inflation across the economy, a strategy that seems to be succeeding bit by bit. But what slowed first and most dramatically were home sales and home prices. Almost immediately in June, inventory shot up and prices stalled. Then over the following months, prices started falling off their spring 2022 peak, ratcheting down a little more with each rate hike, and giving back some (but nowhere near all) of the value gains accrued during the pandemic.
Where are we now?
As of early January, 2023, we have a much calmer market in our region than we’ve had in several years. Micro-markets are a bit scattered, but overall, we’re closer to a balanced market than we have been in a long time.
Inventory is still too low to be considered balanced evenly between buyers and sellers, but it’s much higher than it was, giving buyers some breathing room.
Meanwhile, prices have stopped their rocket ride, and in most cases, declined from their peaks. They rose strongly in the first half of the year, then in most micro-markets, came down again in the second half, resulting in year-end numbers that were mixed. In some cases, year-over-year prices were still up a bit; in others they were flat, or down a little. So most sellers who have owned for 2+ years still have significant appreciation compared to the start of the pandemic.
With that said, sellers are learning to woo buyers again, sometimes with concessions. And while buyers still sometimes find themselves competing for a home (I had three competitions in the 4th quarter, and another just this week in January, 2023!), the competitions are on average far less fierce. And it’s now much more common to have no competition, with a shot at negotiating down on listings that have been sitting a while.
We wish the Fed had more, and finer-tuned, intervention instruments to draw upon; it feels like the real estate market has now taken its hit and doesn’t need MORE rate increases. But other sectors of the economy are lagging real estate’s decline, so the prediction is for rates hikes to continue at least well into the first half of 2023.
The Year-End Numbers (comparing Q4 2022 to Q4 2021)
The following data is for properties under $5 million, since the large prices of a few homes can skew overall market data. For information on how the $5 million-plus market is performing, please contact me. (link to contact)
Prices are up or flat for houses and mixed for condos.
- SEATTLE SINGLE FAMILY HOMES: Average Price per Square foot down 1.5%. Median Sale Price up 10.1%. Why the big difference? One possibility is that a greater number of large, expensive homes sold, pulling up the median while individual houses were not actually selling for higher prices. In fact, after climbing in Spring 2022, then falling again in the 2nd half of 2022, sale prices may have come down 1.5% overall. This would fit what I was seeing in the field.
- EASTSIDE SINGLE FAMILY HOMES: Average Price per Square foot up 14.2%. Median Sale Price up 12.7%.
- SEATTLE CONDOS: Average Price per Square foot down 1.8%. Median Sale Price down 0.2%.
- EASTSIDE CONDOS: Average Price per Square foot up 7%. Median Sale Price up 4.5%.
Market Times are up; on average it takes longer to sell.
- SEATTLE market times (how long it takes a listing to sell, on average) were at 30 days. This is compared to 16 days for the same period in 2021.
- ​​​​​​​EASTSIDE market times were at 38 days. This is compared to 11 days for the same period in 2021.
List to Sale Price Ratios are down; sellers are no longer getting over 100% of the asking price on average. They are back down to typical regional rates of 93%-98% of the last published list price.
- On average, sellers got 96% of their list price in SEATTLE, compared to 103% in 2021.
- ​​​​​​​On the EASTSIDE, sellers got 93% of their list price compared to 108% in 2021.
The Eastside appreciated faster and more than Seattle over the course of the pandemic, so it makes sense that the Eastside correction should be a little more dramatic. And indeed, since rates started climbing, we’ve seen inventory shoot higher and sellers have to come down further, on the Eastside than in Seattle. Yet because of the super-charged value increases they stacked up earlier, overall Eastside property value rates are still far above what they were even a year ago.
Inventory & Sales: inventory is up and sales are down, across all micro-markets. See our charts below.
Micro Markets Matter
Different neighborhoods, prices, and property categories usually perform differently. Whenever you have a question, need or curiosity about your own situation, please don’t hesitate to reach out.
Looking Ahead: What Now & What Next?
As with everything, the real estate market is influenced by a lot of interlocking forces, so it can be difficult to predict exactly how things will shape out, but here’s my perspective, based on the factors listed below.
Overall, I think we’re shifting from a sellers' market to one that can sometimes favor buyers, at least when it comes to prices. Those are likely to ease down a bit, in many cases compensating for higher mortgage rates...especially when we can negotiate rate buy-downs paid for by the seller.
Holding the Market Up
- Economic health. The region remains strong financially in terms of employment, local government, and business activity. Wages—what most people rely on to pay mortgages—will rise a bit faster in 2023, climbing an average of 4.6% this year, compared to 4.2% in 2022.
- Regional allure. People keep on moving here. The Puget Sound Regional Council noted that population is a bit higher than it projected it would be in 2022. The city of Seattle alone added 20,100 people in 2022. Seattle, Bellevue, Sammamish, Tacoma, and Redmond have added more than 216,700 people in just ten years. While economic growth powered by big, local companies has had a lot to do with it, certain factors driving this migration into our area have little to do with the economy; the appeal of our natural environment and our relatively mild climate, which is seen by many as a 'safer haven' as climate change impacts intensify.
- Overall, housing shortages continue. Population is growing faster than we are adding new housing units. This has been going on for the past decade, and we keep getting further and further behind. It is a national trend, as well as a regional one, and is far from being resolved. This will keep some baseline pressure on sustaining higher home values, for the foreseeable future. The Puget Sound Regional Council's reports are a great place to learn more.
Pushing the Market Down
- Tech employment disruption. Microsoft, Amazon, and other tech companies have cut tens of thousands of jobs since late 2022, though not all of these jobs are in the Puget Sound region.
- Stock market struggles. The stock market probably hasn’t hit bottom. It’s at about 4,000 and could sink to 3,500 before it rebounds. If the Fed keeps interest rates steady, though, the stock market should rebound by the end of 2023, perhaps to 4,200. But it’s not the exciting post-lockdown bull market that made people feel rich.
- Relative affordability. Interest rates are lower than the peak of 7.08% on October 27. But they’re still higher than what we’ve grown used to over the past few years, with 5.7% projected to be the going rate by the end of the year. The 3-plus-% rise in interest rates in 2022 make the same home price over 30% more expensive for buyers. However, there are ways to fold this into negotiations; many sellers are helping buy down interest rates for their buyers. And it's so important to keep in mind that even at 6%, these are nowhere near historical "high rates". Rates averaged above 5% through the 1970s, 1980s, 1990s and 2000s.
- Inventory. While there's still a housing shortage overall, it's also true that after years of truly historic low inventory, we’re moving back in the direction towards a balanced market, with more for-sale signs than we’ve seen since before the pandemic, according to Matthew Gardner, a well-regarded economist who has long tracked our regional real estate markets.
What All This Means for YOU!
Things are shifting, but the sky isn't falling.
Here's the bottom line: whatever the economy is doing, residential real estate is about housing. It's about home. And people move because of what's happening in their lives, just as often or more often than they do because of economic factors. Marriages, divorces, births, deaths, aging, kids going off to college, job transfers...all of these life events keep happening in all seasons, regardless of the economy. And that means someone is looking to sell and someone is looking to buy, in order to get out of and/or into the new housing situation they need. So the "market" keeps going.
Sellers
Even as the market shifts back toward balance, you can still do well. In transitional markets more than ever, each property, each micro-market, and each target buyer group is evolving at its own rate, in its own way. That’s why analysis and perspective tailored to your situation is crucial, and it’s important to get a head start on your thinking and planning process. Clear-eyed, current data and careful market approach strategies will position you for success.
Over my 25 years in the business, I’ve navigated boom, bust and transitional markets. I’m armed with strategies for maximizing your results in any market condition. It’s never too early to call me. In fact, I can add the most value the earlier we’re in conversation. I love having as much time as possible to work with you to build your best strategy. Many of my buyers and sellers start talking with me 1 to 3 or even more years before they actually make a move. I’m here for you. Take advantage of the free advice! I never feel like it's a 'waste of time' to have exploratory conversations and help you process, consider and plan.
Buyers
At last, you can breathe again as you search for the right home. Interest rates are up, but some prices are coming down a little as well. Many mortgage experts are predicting lower rates again within year or so, so you are likely to be able to refinance before too long. Meanwhile, when rates go down again, prices will go up again.
As with sellers, my biggest note for you is to reach out so we can strategize! It’s a home-by-home market. Some sellers remain unrealistic, while others are offering great deals. This means sometimes we can really negotiate down...and other times we might once again find ourselves in a bidding war. This makes things complex to navigate, but that's where my experience comes in. We are successfully getting buyers into great homes at terms they are happy with.
Thanks for Reading!
Real estate is influenced by market forces, but it’s also a deeply personal decision. I regularly help people develop their strategies not just for now, but for years down the road. My commitment is to support you in making your best choices, whether that means you move now or in a decade. There’s a lot of information out there, whether its news headlines or Zillow data, but nothing replaces tailored conversations specific to your life, your needs, and how those intersect with financial trends of the times.
So however 2023 unfolds, I’m here to help you explore, clarify, and achieve your own particular real estate goals. I work closely with my clients to customize strategies that consider market conditions and your unique needs and situation. Be sure to get in touch early, if you’re thinking of buying or selling, or just want some advice on home improvements or future plans and dreams. The more you involve me in those early conversations, the more I can do to help you achieve your goals in the best possible way for you. And I’m always happy to give free advice on all things home and home strategy!
