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State of the Seattle Real Estate Market - July 2023

Our Loft Listing in Capitol Hill

Low Inventory We are officially in the second half of the year, and the Seattle metropolitan real estate market has been quite active! As it stands for King and Snohomish County, in June, inventory was sitting at “1.1 months.” *Remember, 1.1 months of inventory means that if no new homes were to come on the market starting tomorrow, in roughly 33 days, there would be no housing left to buy. 1.1 months' inventory is extremely low given that conventional thought is that 6 months' worth of inventory is a balanced market. A "balanced market" means that the real estate market does not favor Buyers or Sellers athat both sides have equal leverage. The last time we had 6 months of inventory was in February 2011, when the world was amid the financial crisis. In watching the local market, I disagree with the conventional thought that 6 months' worth of inventory is balanced. In my opinion, a balanced market in the Seattle Metro area is much closer to 2.5 - 3 months of inventory. Year Over Year Depreciation!? While interest rates have doubled since early 2022, the Seattle/Bellevue market has seen the prices slowly rise since the beginning of this year. Buyers realize that rents are not getting any lower and accepting that the days of 3 or 4% interest rates are gone. I expect interest rates to simmer down in 2024, but for the rest of this year, rates should float around 6.6-7.2%. This will continue to keep the downward pressure on prices. Between King and Snohomish County, the median price for single-family homes was $884,500 in June 2022 compared to June 2023, currently sitting at $870,000. While rates have increased considerably, values have remained relatively stable, with much of the credit due to inventory being so low. The cause of the low inventory is mainly because most Buyers, and those who have refinanced, over the last 10 years have an interest rate lower than 5%. Currently, over 80% of homeowners have an interest rate under 5%. It is challenging for those owners to justify selling their property. They are staying in them longer rather than selling. This situation is also known as the “Lock-In” Effect.

What will happen next? So when will more inventory and the relief come? I expect this to happen when interest rates come down in 2024. As soon as interest rates drop into the low-6% range or the 5% range, I believe that there will be a mad rush in the market from Sellers who have been holding off on upsizing or downsizing and Buyers who realize a rate in the 5% range may be the best we're going to see for several years. The reason I see Sellers listing their homes when rates drop into the 5% range is that while a ~5% rate is likely still higher than what they currently have, the differential between their interest rate and ~5% is not as extreme as it is right now with rates floating at ~7%. If owners now have a rate of 3.75% and could trade up comfortably at 5.5%, it is reasonable to assume they would, but at 7%, the numbers make it considerably more challenging. I expect prices to go up when rates drop, so while the interest rates will come down, more Buyers and Sellers will enter the market, and you may find that the competition will go up. There will be pros and cons to waiting or not, depending on your unique situation. As a result of the volatile interest rate environment, there are many creative ways to navigate the rates. For example, Seller Financing is becoming much more common as well as loan products like the 2-1 Buydown. Are you interested in Buying or Selling but are spooked by the rates? Watch our video on the 2-1 Buydown - CLICK HERE!


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