Western Washington’s hot housing market starts to cool

New numbers show home price growth slowed for the first time in months, as high-interest rates and even higher home prices eliminate would-be homebuyers.

After a chaotic year of bidding wars, buyers waiving all contingencies and homes selling for well over the asking price, the housing market may finally be cooling off.

New data from the S&P CoreLogic Case-Shiller Index shows home price growth slowed down for the first time since 2021 in the month of April nationwide, including in western Washington.

In the month of May, a new report from the Northwest Multiple Listing Service (NWMLS) also showed a big boost in active listings and a slowdown in sales.

The changing tides come as mortgage rates soar to their highest level in 14 years, pricing out many would-be homebuyers.

“The housing market is slowing down. It used to be very competitive when interest rates were close to 3%. Now mortgage rates are close to 6%, and it got 50% more expensive to borrow to buy a home right now than it was just a couple of months ago,” said Daryl Fairweather, chief economist at Redfin, a real estate brokerage firm.

“A lot of buyers are just bowing out of the market,” she continued.

In turn, those high-interest rates are taking a toll on buyers’ purchasing power.

According to Redfin, in December 2021, a buyer with a $2,500 monthly housing budget would have been able to purchase a home that cost just over $517,000.

In June 2022, that same budget would only get you a house priced just shy of $400,000.

On average, that means buyers lost roughly $120,000 in purchasing power because of the rate hikes.

In addition, while buyers can afford less, home prices are still high.

“On a $2,500 budget in Seattle, last year you would have been able to afford about 12% of homes, and now it’s only five, six percent of homes,” Fairweather said. “There are just so few homes that are affordable to somebody making $100,000 or less.”

As would-be buyers are priced out, homes are now staying on the market longer.

“Homes aren’t getting as many offers, some aren’t getting offers at all, so they sit on the market and that inventory has a chance to pile up,” Fairweather explained.

Redfin reports a 16.2% increase in Seattle housing inventory from April to May of this year.

NWMLS is based in Kirkland, Washington, and services 26 counties in our region. The nonprofit group reports 13,075 new listings added to its inventory during the month of May — up 9.7% from a year earlier and the highest monthly number since June 2021.

The decline in buyers has led some sellers to adjust their pricing.

“Some (sellers) are dropping their prices. We’re seeing more and more price drops crop up. The market just got too hot all across the country and including Seattle, so now sellers have to be a bit more realistic,” said Fairweather.

Fairweather explained she believes the days of buyers waiving all contingencies are likely in the past, now that there is more inventory and less competition, but that doesn’t mean buyers have the upper hand.

“You still have to pay a lot of money, so it’s not like buyers are really winning in this situation, but I think because there are fewer buyers out there, sellers are having to compromise a bit more,” she said.

Fairweather advises buyers to focus on getting a home that is right for them, and doing the best they can to find what they want based on their budget.

“The good news is when you do find the home, you’re going to have a better chance of winning it because there’s less competition,” she said.

As far as sellers are concerned, Fairweather recommends waiting to sell.

If that isn’t an option, she advises sellers to get their home “debut ready” by staging their space and making any fixes that could deter one of the limited buyers.

“You don’t want to scare off buyers with some minor thing you could have fixed ahead of time,” Fairweather said.