A Market Heading Toward Balance? Or, a Market Returning to a Pre-Pandemic “Normal”?

Sarah and I attended a seminar with the Seattle King County Realtors Association to learn from the most respected real estate economist in our region, Matthew Gardner, Chief Economist at Windermere Real Estate. Our top 3 takeaways were: stop comparing the current market to 2020 and 2021 figures, interest rates will peak in Feb/March 2023 and begin to taper in Q3 2023, and our local job market is strong and diverse, allowing for a more limited slow down compared to other parts of the country.

It’s time to move on from 2020 and 2021 home values and interest rates

We need to stop comparing current home values with 2020 and 2021, there, I said it. I’ve been feeling this way for months, and having a highly educated economist confirm my feelings provides me the confidence to put it in writing for the masses to read.

It's not that I don't think we won't see incredible home values in our area again in the future, but I don't think we will experience the astronomical level of price appreciation across all sectors of our housing market like we did during the pandemic. There were many contributing factors that lead to the housing chaos in 2020 and 2021 - Feds printing money, interest rates at all time lows, people not moving from their homes in an effort to “ride out” the pandemic in the safety of their homes, millennials finally having the courage to enter the marketplace and stop paying rent (who could resist a 2.75% interest rate?), and tech employees accessing stock to buff up their down payment amounts to 30-50% of the sales price.

Take a look at the graph below and you’ll see how dismal the inventory of available homes for sale was during the peak of the pandemic (June 2020-May 2022). What you’ll also notice are the inventory levels in 2018 and 2019, which are nearly identical to the inventory numbers for the later half of 2022. But, there’s more.

How does the additional inventory impact home values? Overall, prices are pulling back and will fall a little further as the market continues to shift back to a sustainable pace of appreciation. Although average and median list prices are up 6% and 9% (year over year), they are down 14% and 17% from their respective 2022 peaks.

Home prices are predicted to turn negative in 2023, an unfortunate consequence of the rapid price growth that the market has seen coupled with the jump in financing costs. But, here’s a fun fact for you – an astounding 66% of homeowners have 50% OR MORE equity in their homes. This is an incredible benefit for homeowners, putting them in a remarkably secure financial position when it comes to their homes, and further distancing our real estate market from the ever talked about “housing crash”. It also means that if a seller does decide to sell in 2023, they will still be making an incredible return on their investment even if prices recede a bit further.

In summary, although inventory levels are rising and prices are coming down, the market can not be considered as balanced. The region is moving toward balance, but is still far from being a traditional “buyers’-market”. Seller’s are still in the driver’s seat, but are having to come to terms with pricing and closing cost concessions to assist Buyers with interest rate buy-downs at closing.

Interest rates will peak in Feb/March 2023 and begin to taper in Q3 2023

I’m not a mortgage broker, so I’m not going to get too into the details like I did above (sorry, no fancy graphs for ya!), but economists are anticipating another rate hike in December. The core CPI (consumer price index) rose again in Q3 and the Fed’s will continue to raise rates until the CPI begins trending downward, consistently. Gardner predicts we will see another rate hike in December of 50 basis points, and another hike in Feb/March of 25 basis points. Are we at the top of the mountain when it comes to interest rates? Gardner is hopeful this is the case. He predicts that rates will peak in Q4 this year (now) and will begin to recede in Q3 2023. 

Basically, the Fed’s are willing to risk a recession in order to heel inflation. In our local economy, this will hopefully feel more like a “modest” contraction than a full on recession, and this is due to our diverse and strong labor market.

Employment turns modestly negative next year

With a national recession looming, the area will shed jobs in 2023, but not to any significant degree. I know you’re probably scoffing a bit considering Facebook, Zillow, and Redfin all announced sweeping layoffs this week, but those reported layoff numbers are for jobs cut nationally, not locally. Luckily, our job market consists of more than technology and real estate technology companies. The Seattle Metro Area has recovered most jobs shed during the pandemic, which has created a tight labor market. According to the Washington State Employment Security Department, the unemployment rate in King County is 2.9% (last calculated in September 2022). This is a point lower than the national average, and significantly lower than several other counties in Washington State, putting our area in a position to survive a recession with a moderate impact on employment. 

With the jobless rate marginally above the all-time low (2%) Garner predicts the impact of a recession will limit how high the jobless rate rises. This is good news for all sectors of our local economy.

So, is it still a good time to buy or sell??? 

Our answer is YES. This is not a sales tactic, we promise. In fact, all members of our team are actively searching for real estate opportunities locally and nationally. As a Buyer, there are opportunities abound to capitalize on great pricing and seller contributions toward closing costs. As a Seller, you’re likely at the top of your equity game right now with prices expected to roll back a little further in 2023. As a Seller, you’re also in a better position to purchase your next home while selling your current home. Something a Seller hasn’t had the opportunity to do for many years. 

We are privileged to be your local real estate resource. If you’re considering a purchase out of state, let us know! We can connect you with the best agents across the country thanks to our strong referral network.