Are you planning to buy or sell a home in Seattle this year? Unfortunately, both parties may be displeased with the 2023 real estate outlook in the city.
Sellers still have an advantage, but the market is balancing out due to higher mortgage rates and greater inventory.
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2022 in review
Seattle is an expensive city to settle down in. That’s largely due to the stunning growth that it experienced in a relatively short period of time. From 2010 to 2020, Seattle’s population increased by 21.1%, from 608,660 to 737,015, before declining slightly by 0.4% from 2020 to 2021, reports Forbes.
People were drawn to the city’s booming tech industry, which sometimes comes with lucrative salaries. As a result, housing became more challenging to find, and high demand coupled with low supply equates to expensive residential real estate.
At the end of 2022, Seattle’s median listing price increased by 8.7% to $814,000. The median sale price was $811,300, according to Northwest MLS.
King County (Seattle is a part of this county) experienced an average of 55 sales per day in November, with year-over-year median prices up $10,000, rising from $740,000 to $750,000.
Seattle was considered a seller’s market, having a total sales-to-total listings ratio above 0.2 tend (this favors sellers).
Seattle’s market is cooling, but home prices are so high that the change won’t adjust the market to favor buyers. In addition to the higher mortgage rates, layoffs in the tech industry are also contributing to a less ferocious market.
The good news
No more bidding wars
The wild bidding wars and runaway prices won’t be present in 2023. As with virtually every other city, prices shot up by double-digit percentages as the 2020 pandemic dragged on, particularly in suburban areas like the Eastside where homes are very costly. One realtor shared that a place in Bellevue sold for nearly $1 million over its asking price. Prices went up 30% in a year. But that couldn’t go on forever.
Sale prices are dropping
Economists believe that home prices are likely to fall, or at least flatten in Seattle and across the country. Seattle-area prices could fall far faster than the national trend, as much as 10%, but it’s more likely that average sale prices for single-family homes will decrease by 5%.
Inventory in King County is expected to be higher than it has been in a few years, with a peak of new inventory in May and June.
Rent prices are cooling
There is also a strong chance that rent prices will not explode the way they have in previous months. Numbers may continue to climb, but at a much slower rate. This is because more people are expected to stay put in their current rental units.
A record number of new apartments were also finished around Seattle in 2022, and 2023 will bring more new rental units. About 12,000 new spaces will be available to rent in 2023, but many of them are luxury towers located in downtown and South Lake Union.
To help lure new tenants in, several of these downtown properties are offering concessions like free rent for the first month.
The bad news
Yes, the numbers may be dropping, but both rent and home prices will remain far out of reach for several people who would like to move into a bigger or better space. Higher interest rates have actually made it harder for first-time buyers to afford homes.
Mortgage rates are up
In December of 2022, the monthly mortgage payment on a typical home in the Seattle metro area was approximately $3,841 per month, up 60% from a year ago, reports Zillow. To put things in perspective, a 1% rate increase can reduce a buyer’s purchasing power by about 10%. Even people who have some wiggle room may decide it makes more financial sense to rent.
A small portion of owners will be underwater
Buyers who recently purchased a place and were thinking of selling in the near future may be feeling a lot of stress. If home prices drop by just 4%, about 6% of recent Seattle-area homebuyers will be underwater, meaning they would owe more than their house is worth by the end of 2023, predicts Redfin. If prices drop 12%, nearly 16% of people would be underwater.
Experts don’t expect this problem to cause profound home loss. For now, the Seattle area has some of the lowest foreclosure rates in the U.S. But the number of recent buyers who could be underwater is larger in Seattle than in most other major markets.
New rentals won’t solve affordability issues
Many of Seattle’s new rental units will not be geared toward lower-income individuals. Furthermore, after 2023, it appears new builds are going to slow. This problem will be more evident in a year or two since supply will shrink and it can take years to permit and build when the need intensifies again.
If you’re looking to purchase real estate in Seattle, there is no shortage of unique neighborhoods to choose from. Young adults are gravitating to this city, and one source stated that it was the number one city to move to for new college graduates.
However, Seattle is also very expensive, and costs do not always align with beginner salaries. Even experienced workers may struggle to keep up with housing costs here. Prices are not climbing, but interest is, and that’s making it equally challenging for prospective buyers to purchase property.
Sellers aren’t in an ideal position, either. The market is favoring them, but only very slightly. Anyone who purchased a home within the past two years would be advised not to sell this year since it is possible that the value could be less than what they purchased it for.
With all that being said, it’s ultimately up to the buyer to decide when to invest in a property. Just ensure to do the math, and consider the “what ifs” before you buy.