SEATTLE — Seattle-area homebuyers may be finding a little more breathing room in the housing market, with more homes available and less competition than in recent years. But Zillow economists warn that rising mortgage rates could make purchasing a home more difficult heading into the fall and winter months.
According to Zillow’s latest July Market Report, home sales nationwide increased 7% in July compared to the same month last year. However, Kara Ng, a senior economist with Zillow, said the increase in sales does not necessarily signal long term strength in the housing market.
“That’s because if you look at the fall and winter seasons and you look at where mortgage rates were a year from then, likely mortgage rates were lower a year ago than today. So that means that you’re going to be facing an affordability headwind and that will impact sales.” Ng said.
Ng said mortgage rates remain a key factor influencing affordability for prospective buyers. She noted that rising oil prices have also played a role in driving borrowing costs higher.
“That impacts inflation, which impacts where interest rates are headed,” Ng said. “And right now, remember at one point we had mortgage rates slightly below 6%. And then we had this oil shock happen and the mortgage rates went up from there. So I think that the impact of the oil shock means that borrowing costs are higher for home buyers.”
Zillow data shows the typical Seattle home is valued at roughly $741,000. To afford a home at that price with a 20% down payment, a household would need an annual income of nearly $193,000.
“If you’re making that, congrats, you can afford the typical home in Seattle,” Ng said. “And put that into context, before the pandemic in 2020, I think you only needed, and I say only jokingly, $105,000 to be able to afford a typical home.”
Despite ongoing affordability challenges, Zillow found that housing inventory in Seattle is up 17% compared to a year ago, giving buyers more choices and potentially more leverage when negotiating with sellers.
“I would say that you have some negotiation power right now,” Ng said. “As we’re wrapping up the summer season ahead of fall, many sellers may be motivated to sell their home before the school year starts, and many sellers are motivated to buy before the holidays come around.”
For aspiring buyers who are not yet ready to enter the market, Zillow recommends using this period to strengthen their financial position.
“One thing is to make sure your credit score is great,” Ng said. “Make sure that you are aware of your financial picture.”
Looking ahead, Zillow advises buyers to shop around for the best mortgage rates and speak with lenders early in the process to understand what they can realistically afford before beginning their home search.
According to Zillow, while buyers may currently have more options than they’ve had in recent years, changes in mortgage rates could significantly influence housing affordability as the market moves into the slower fall and winter seasons.