When Will the Seattle Housing Market Cool Down?

Over the last ten years, the Seattle housing market has exploded. This is due in large part to the city’s rapidly growing population and the demographics of new residents. Many new residents are high earners – often associated with the Seattle tech scene. During the COVID-19 pandemic, Seattle and nearby cities became even more popular. In his December 2021 article “America’s New Boom Towns” for The New York Times, Michael Kolomatsky explains. Kolomatsky writes that Seattle is one of the “fastest growing metropolises in the nation.” Referencing a survey conducted by SmartAsset, Kolomatsky writes that Seattle’s population has increased 12% over the last five years. Its median household income has grown 44% over the last five years.

Even before the pandemic, demand amongst wealthy new residents across the Seattle Metropolitan Area had produced some of the highest home prices in the United States. Of course, housing prices shot up almost everywhere in the US once the COVID-19 pandemic hit. During this time, interest rates dropped, new construction stopped and inventory dried up. Scrambling to lock in a fixed-rate thirty-year mortgage at today’s incredibly low interest rates, home buyers have driven housing prices to record highs with intense demand and aggressive bidding wars. Seattle is no exception as one of the ten most expensive cities in the country. Below, we answer the question many Washingtonians have asked in recent months: when will the Seattle real estate market cool down? Keep reading to learn what real estate industry experts expect from the Seattle housing market in Spring and Summer 2022.

Seattle Remains One of America’s Most Expensive Cities

As mentioned above, Seattle’s housing market has been heating up for two decades due to the city’s growing tech scene. Today, Seattle is one of America’s most expensive cities in which to buy a house. According to AreaVibes, Seattle is sixth in a list of the “Top 10 Cities With Most Expensive Home Prices.” Ahead of Seattle are San Francisco, Honolulu, San Jose, Fremont and Scottsdale. At the time of publication, Seattle had “a median home price around twice that of the rest of Washington” and the average selling price for a single family home was more than $500k.

Data from real estate brokerage Redfin and marketplace Zillow supports these claims. Zillow’s Seattle Market Overview – which includes data up to 28 February 2022 – notes that the seasonally adjusted typical home value in Seattle is now $932,382. This is only slightly below the typical home value in Los Angeles, which was last recorded as $944,651.

The Market Overview notes that “Seattle home values have gone up 14.6% over the past year” alone. According to Redfin, the median sale price of a single family home in February 2019 was $670k. In February 2022, the median home sold for more than $100k above the February 2019 median at $771,877. Redfin’s data shows that the average home in Seattle sells for 6% above its list price – entering escrow after just six days. A shocking 54.6% of all homes bought in Seattle over the last year sold for more than the list price.

How Long Have Housing Prices Been Rising in Seattle?

According to AreaVibes, home prices in Seattle have increased “more than 110%” over the last twenty years. In her article “Seattle ranks among top 10 cities with highest home price gains over past decade: report” for Seattle PI, Becca Savransky explains that this makes sense given rising costs and buyer demand in cities across the US. Referencing a recent report from PropertyShark, Savransky writes that “Seattle homes sold in 2009 were resold in 2019 at a more than 50% higher median price.”

Savransky notes that “homes in large urban centers appreciated in value at a noticeably more accelerated pace than the overall U.S. residential market.” For example, Savransky writes that “homes in the $500,000 to $750,000 range traded at a 35% increase, compared to the 30% national gain for that category.” Over the last ten years, “the median resale price for homes in Seattle increased by 51%.” Of course, prices are even higher now that mortgage rates are low and buyer demand is incredibly high.

Which King County Cities Are Growing Fastest?

During the COVID-19 pandemic, more than 40 million Americans worked remotely. In 2021, more than a quarter of Americans were still working from home at least one day each week. No longer needed in the office full-time, remote and hybrid workers all across the country fled major metropolises for bedroom communities, suburbs and rural areas of the US.

Like many other states – especially expensive ones along the coasts – some of Washington’s greatest population growth occurred in smaller cities surrounding Seattle over the last couple of years. In his January 2022 article “Which Seattle-area cities are growing the fastest | FYI Guy” for The Seattle Times, Gene Balk explains. Balk writes that “of the largest cities in our metro area, Everett had the fastest growth, at 1.5%, bringing the population to 112,000.”

Among those surrounding Seattle “with at least 30,000 residents, Lake Stevens grew the fastest, at 3.9%.” Both Everett and Lake Stevens are in Snohomish County while Seattle is in King County. One small city about thirty miles outside Seattle called Black Diamond grew a shocking 13% last year. Other cities within fifty miles of Seattle grew more than 4%. These include “Edgewood, Bonney Lake, Sultan and Arlington.”

Which Seattle Neighborhoods Have the Highest Median Sale Price for Single Family Homes?

Though their populations might not be growing as quickly as those of cities like Edgewood and Arlington, the home prices in Seattle’s suburbs are still rising astronomically. According to a recent article from Seattle Met, eight Seattle suburbs “saw more than a 30 percent increase" in the median house sale price compared to the same time last year. These include Kirkland/Bridle Trails, Juanita/Woodinville, Enumclaw, Renton Highlands, Renton Benson Hill, Newcastle, Factoria, Newport, Bellevue and Bellevue East.

Just ten and twelve miles from Downtown Seattle respectively, Bellevue and Bellevue East experienced the most significant increases. In January 2022, the median sale price of a single family home in Bellevue was $2,225,000 – up 84.8% from 2021. The median home sold in Bellevue East went for $1.5 million – doubling the median sale price in January 2021. Other Seattle neighborhoods like Denny-Blaine, Windermere, Madison Park, Laurelhurst and Briarcliff are just as expensive – with median sale prices between $1.4M and $2.3M. Several of these neighborhoods are technically closer to Tacoma -- in Pierce County -- than Seattle.

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What to Expect from Seattle’s Local Housing Market in Spring/Summer 2022

Last year, economists, industry experts and market watchers predicted the real estate market would start cooling off in many cities across the US. They pointed to rising interest rates, resolving supply chain issues and an uptick in new home construction. Similar predictions were made for the Seattle real estate market. However – three months into 2022 – the opposite appears to be true. Of course, both buyers and sellers are traditionally most active during the spring and summer months. As such, a busier market in Spring/Summer 2022 was always to be expected.

In her article “The Best Time Of Year To Buy A House” for Rocket Mortgage, Victoria Araj writes that “sellers generally price their homes high during the spring, and then bidding wars tend to break out, which can make for a challenging environment in which to purchase a home.” According to Barbara Marquand in her article “The Best Time to Sell a House” for NerdWallet, “homes generally sell for the highest prices in June and July and the lowest prices in January and February.” Traditionally, homes “sell quickest in the summer.” Conditions that could have flipped the script – like rising mortgage interest rates and more inventory – might actually make the market even more competitive. We explain this in further detail below.

Interest Rates Will Continue to Rise

Over the last few months, interest rates have been on the rise in response to record-breaking inflation. Many economists expect rates to increase even further in coming months, with mortgage rates rising in tandem. In her March 2022 article “Mortgage Interest Rates Forecast: Will Rates Continue To Rise In 2022?” for Forbes, Natalie Campisi explains. Campisi writes that “most housing experts [expect] higher mortgage rates, ranging in the upper 3% up to 4% by the end of 2022.”

Quoting Michael Fratantoni – chief economist for the Mortgage Bankers Association (MBA) – Campisi notes that “rates could reach 4%” by the fourth quarter. However, CoreLogic’s deputy chief economist Selma Hepp believes rates will not exceed 3.4% because the 10-year Treasury yield is not expected to jump that high. Far beyond expectations, Jon Reed notes in a March 2022 article for TIME partner NextAdvisor that mortgage rates have already hit 4.59%.

Will Prices Fall as Rates Rise?

When interest rates rise, buyers usually back off because they are unable to afford such high monthly mortgage payments. In 2022, the opposite has occurred. Terrified that rates will rise even further, buyers are rushing to market. In her February 2022 article “How Bad Will It Be? Why the Spring Housing Market Will Be ‘Miserable’ for Homebuyers” for Realtor.com, Clare Trapasso explains.

Trapasso predicts that buyers “who thought last year’s meteoric jump in home prices was rough should be prepared for this spring to be even worse.” Though Trapasso notes that “it would make sense that, as mortgage rates rise, home prices would fall or at least stabilize…[because] there has to be some limit on how much buyers can afford to spend on housing.” Instead of prices starting to fall, “they’ve been shooting up at a faster clip as home shoppers rushed into the market hoping to lock in a home at a low mortgage rate before rates rise even further.” Rising prices might be here to stay throughout the Puget Sound Area -- particularly in hotspots of King County, Pierce County, Kitsap County, Snohomish County and San Juan County.

Housing Inventory Will Increase – But Not Enough

Writing for Realtor.com, Clare Trapasso acknowledges that lack of inventory will be another major player in this season’s housing market. Trapasso writes that “the nation has been mired in a housing shortage for years, but it’s now grappling with the fewest homes for sale ever.” Thankfully, available housing inventory is expected to grow over the next few months as it recovers from supply chain woes, material shortages and a labor crisis. Already, new construction has produced new listings to meet increased demand.

According to Marco Santarelli in a post for Norada Real Estate Investments, the “Northwest Multiple Listing Service brokers added 7,920 new listings to inventory in February, a 6.8% increase year over year and a more than 33% increase over January's total of 5,927.” Santarelli writes that “buyers in King County are ecstatic with the roughly 40% rise in new listings in February over January (2,901 vs. 2,083).”

Unfortunately, local trends show demand for housing will increase most in the suburbs surrounding Seattle where there continues to be “a lack of new construction entering the market…following years of underdevelopment.” In short, new construction is unlikely to meet demand in Spring/Summer 2022.

Demand for Less Expensive Homes Will Grow

With interest rates rising, many buyers will be unable to afford more expensive homes in the Puget Sound Region. Instead, they will compete for more modest single family homes in less expensive areas of King County, Pierce County, Snohomish County and other regions surrounding Seattle.

In her March 2022 article “Seattle’s spring housing market is coming. Here’s what to expect”  for The Seattle Times, Heidi Groover elaborates. Groover writes that “a cache of new homes hit the market for sale in the Seattle area last month, hinting at the arrival of the spring market when home shopping will heat up.” Despite lots of new homes, we are unlikely to see a balanced market – which experts define as one with “four to six months of inventory” – any time soon.

And if the past few years “are any indication, home shoppers may be bracing for long lines at open houses, aggressive bidding wars and skyrocketing prices.” Quoting North Seattle Redfin agent Jasen Oda, Groover adds that the most significant price increases will probably occur in more affordable markets.

Oda tells Groover that “in the Seattle area, ‘the competition’s going to be higher on the lower end, because when interest rates rise, buyers can’t afford as much, so they’re forced to look at the lower price point.’” Sadly, Oda believes first time buyers “‘are going to really be hurting the most in this rising interest rate environment.’”

Seattle Housing Will Still Be a Seller’s Market

Prospective home buyers hoping for a balanced market – or even a buyer’s market – should lower their expectations. Seattle’s local housing market will likely remain a seller’s market for many months to come. As of March 2022, the median amount of time a single family home sits on the market in Seattle is still just six days.

While sellers will retain their advantage over buyers, many real estate experts believe the rapid rise of housing prices will slow somewhat by Summer. Writing for NextAdvisor in his article “How 4 Experts Say You Can Prepare Now for a Busy Housing Market This Spring,” Jason Stauffer explains. Stauffer writes that “low housing inventory and high demand will create a strong seller’s market, but not as intense as the peak of 2021.” However, “home prices are expected to continue rising, but at a slower pace than last year.”

Stauffer also expects bidding wars to be “less intense” and “less frequent” – a big relief to buyers. As Seattle residents might remember, insane bidding wars broke out earlier this year. In her January 2022 article “‘Brutal,’ ‘crazy’ housing market has Seattle-area homes selling half-million over asking price” for KIRO 7 News, Deedee Sun writes that “a wild housing market is forcing many Seattle-area home buyers to pay $300,000 to $500,000 over asking price — in some cases, even nearly $1 million over asking.”

Quoting managing broker Kendra Todd of the Kendra Todd Group, Sun notes that “‘it’s fairly common — on the Eastside in particular — for people to be escalating $300,000, $400,000, $500,00 over list price.’” While Stauffer writes that “all-cash offers and conventional loan offers with appraisal contingencies waived were often needed to win the bid” in 2021 and early 2022, more buyers will probably have a bit more leverage this season.

List Prices Will Keep Going Up -- Especially in Seattle Area Suburbs

Of course, list prices will keep going up due to increased demand. While local markets in the most densely populated areas of Seattle might cool off, prices are expected to shoot up in neighborhoods on the city’s outskirts. In the article “What’s the future of Seattle real estate for 2022?” for Seattle Agent Magazine, Eddie Chang, John Deely, Matthew Gardner and John Madrid explain.

Both Chang – senior global real estate advisor at Realogics Sotheby’s International Realty – and Gardner – chief economist at Windermere Real Estate – expect prices to increase across King County due to “not enough supply for the strong demand in our growing city.” Chang notes that “King County still faces a housing shortage of over 300,000 units” despite an uptick in residential construction.

Why Suburban Areas of Seattle?

While John Madrid believes “Seattle will always be popular given the limited supply of homes,” he and other local experts expect demand – and home prices – to grow fastest in “suburban and exurban markets.” Madrid anticipates “continued super-strong demand for areas outside the city where more jobs, oftentimes better schools/quality of life and less ‘city’ issues can be found.”

It is in these areas outside Seattle that major tech companies have recently announced new factories, distribution centers and headquarters. Chang notes that Amazon recently expanded into Bellevue, Google into Kirkland and Facebook into Redmond. As such, he expects demand and home prices to increase most in areas of “job growth.”

Building a New Custom Home in Seattle with Element

If you and your family are tired of watching bidding wars break out over the limited supply of houses in and around Seattle, it might be time to build your own home. Our design-build firm recently expanded to Washington State from California, where our team continues to craft custom homes for buyers in Los Angeles, San Francisco and everywhere in between. Give our team a call to discuss details of your project!

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