There are three indisputable nationwide factors that will affect real estate appreciation in 2023: Mortgage Interest Rates, Unemployment, Home Supply. When we apply these factors to our local markets however, how does this translate?
As of today, interest rates on a 30 year fixed mortgage sit right around the mid 6s on average which represents a decline of 7 basis points in just one week.
While these will continue to fluctuate over the coming weeks it is not predicted that we will hit the heady heights we saw last quarter. In fact at the end of 2023 it is anticipated that we will land right in the mid-5s, which is technically where should be based on data trends had we not witnessed 2020's abnormal drop.
These are averages but note that every bank offers different opportunities based on how a consumer structures their loan, down payment amounts and how well qualified they are. For example, PNC Bank, whose forte are jumbo loans, closed out 2022 with a 30 year fixed rate of 5.75% with 25% down and a minimum credit score of 720. Shopping around for a good interest rate, is key.
It's important to note that it is unlikely that we will go back to impossibly low interest rates in the near or even distant future, unless triggered by extenuating circumstances., such as 2020's pandemic.
Currently there are 1.3 million more job openings than there are unemployed people which has also meant that wages have increased as a result. Companies started to cut back last year and continue to "trim down" as we enter 2023. It is predicted that overall we will lose approximately 1.2 million jobs, with one of the most affected industries being aerospace. Overall, the information sector has grown by 74% since 2010 and the biotech industry in the Greater Seattle area continues to grow too.
We'll end 2023 with a predicted unemployment rate of 5.5%, which is just a little over the "healthy" economic standard of 3-5%. While signs are that we are entering a period of recession, the impact our local housing market is predicted to be minor.
The number of permits being processed in the Greater Seattle Area continue to lag behind and resale inventory simply cannot meet demand so despite decreasing home values, we are still technically in a seller's market. I know that many sellers are waiting to list in Spring of this year and the hope is that we sustain a more level market going forward. However we anticipate a strain on available housing, which will in turn retain an element of competition thanks to ongoing demand and so we may retain a seller advantage as we move through the year. That will remain to be seen!
While house prices locally are predicted to drop a little more between now and end of summer, I envisage that prices will level off in most neighborhoods at the end of February as both supply and demand pick up. Prices will inevitably slow down again in the summer and rev back up in September, especially if interest rates reduce a little further by then. I anticipate that prime selling times in our areas (assuming interest rates follow the trends economists are forecasting) will be April and May and then September and October.
When assessing "price drops" we have to bear in mind the "artificially created" increase we saw between 2020-21 and 2021-22. In the Greater Seattle area we saw an average of 30% increases during that time, up to 40% in some neighborhoods. Therefore the median 22-25% drop between April and December 2022 is understandable given the rise in interest rates. Veteran realtors who have operated in this industry and location for 30+ years had never seen anything like the market we experienced last Spring. It truly was an anomaly and the likelihood of that perfect storm occurring again in the next few years is small.
Prices are close to leveling out again - aka, landing more in line with what they would have been had we been in a normalized market for the last couple of years. From there, we still expect to see a small year on year increase when comparing Q4 numbers at the end of 2023.
WHAT DOES THIS MEAN IF I WANT TO PURCHASE A HOME?
A well priced home this year will still sell fast at or just over asking - this has been the case through Q4 of 2022 and will continue as we move into the new year. Bear in mind that if you're moving within the state, you have competition from elsewhere too - for example last year two thirds of Snohomish county's population growth came primarily from California.
Shop around for the best mortgage rates, protect yourself with contingencies as you place offers, but don't try to low-ball a well-priced home or else you'll miss out.
WHAT DOES THIS MEAN IF I WANT TO SELL A HOME?
First, remember that your home is likely still worth between 5-10% more than it was at the start of 2022 - let that sink in for a minute. Secondly, forget the crazy market in Spring of yore - it was an anomaly that we may not experience again for years to come.
Be at peace with your realistic home value (no, not Zillow or Redfin's estimates) and price accordingly. If your home is well maintained and move-in ready, it will sell faster than its competition.
Be prepared for a longer time on market (average 30-35 days currently), but know that well priced homes are still selling within a week. I have witnessed this personally even in December, a typically slow month.
Pocket neighborhoods will be affected slightly differently depending on factors such as prior rate of appreciation and desirability, so do contact me directly for a specific neighborhood analysis.
It's going to be a transitional year and it will be a good year. Happy 2023! I wish you much happiness, good health and prosperity.
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