Brokers with Northwest Multiple Listing Service (NWMLS) are reporting a return to some creative financing methods as motivated home buyers and sellers grapple with higher mortgage rates. Despite that, and the seasonal slowdown in activity, 6,435 hopeful homebuyers succeeded in having sellers accept their offers to purchase during October.
“Buyers are benefiting from more choices in inventory and less competition, while sellers are more negotiable when it comes to contingencies,” reported NWMLS director Meredith Hansen. “We are seeing more 2/1 buydowns and adjustable-rate mortgages with buyers planning to refi when the rates come back down,” added Hansen, the founder and operating principal at Keller Williams Greater Seattle.
The latest Northwest MLS shows 6,435 pending sales last month, and about the same volume (6,464) of closed sales. Both figures were down from the year-ago totals, with pending sales dropping about 39% and closings declining around 35%.
Median sales prices still rose year-over-year in most of the 26 counties on the report. Area-wide, the median price on last month’s completed sales of single family homes and condominiums was $595,000. That was an increase of about 3.5% from twelve months ago, but a decline of approximately 9% from May when prices peaked at $660,000.
Homes and condos in San Juan County commanded the highest prices, with a median sales price of $911,000 – and that was a 7.5% decline from a year ago. Last month’s closings in King County had a median price of $811,000, up more than 8% from the year-ago figure of $750,000.
A comparison of counties shows price drops in nine of them. Seven counties had double-digit gains, but improved inventory and interest rates were the storyline for many of the brokers who commented on the NWMLS statistics.
NWMLS director Jeff Pust said, “There is no doubt the market has changed with higher interest rates being the main culprit.” He acknowledged some buyers are waiting to see if rates and home prices drop. “My fear is that buyers who take this approach may miss out on the perfect home as some fantastic properties have come on the market that have sellers who are determined to sell and move on,” added Pust, the owner/designated broker at Van Dorm Realty, Inc., in Olympia.
Brokers added 7,260 new listings during October, down about 21% from the same month a year ago. At month end, the selection included 14,214 active listings of single family homes and condos system-wide. That was more than double the year-ago inventory of 6,588.
The uptick in supply boosted the months of inventory figure to 2.2. That is the highest level, based on this metric, since January 2019.
“Buyers’ opportunities abound,” proclaimed Gary O’Leyar, owner/CFO at Berkshire Hathaway HomeServices Signature Properties in Seattle, noting inventory in several counties is two-to-three times larger than a year ago.
“As for the interest rate ‘elephant in the room,’ the time has come for buyers and sellers to revisit financing methods from previous markets,” O’Leyar said, mentioning the use of buydowns, adjustable-rate loans, carrying back second deeds of trust, and closing cost allowances as possible options.
“Interest rates can and will change. When they drop, refinancing is an option or taking out a shorter term 5/1 ARM. For buyers with foresight and market savvy, here is their opportunity.”
“Inventory continues to grow,” said Frank Leach, broker owner at RE/MAX Platinum Services in Silverdale and a member of the NWMLS board of directors. He described the market in Kitsap County as “strong and competitive. Open house traffic continues to be very active and buyers are being offered a number of seller concessions to soften the blow of increasing interest rates, especially on new construction,” he reported. “Mortgage programs are offering below-market rates with various buydown options – something we have not seen for years!”
John Deely, executive vice president of operations at Coldwell Banker Bain, also commented on building inventory and strong open house traffic. “We are continuing to move into a more traditional market. Buyers are out looking and watching the market, and they have more time to make informed choices with the help of seasoned brokers.”
Unlike the recent past, when buyers encountered multiple offer situations and not being able to get into a property because they were outbid, Deely said the question for them now is affordability in the neighborhoods where they want to live. “We are seeing sellers who are concerned about further rate increases come to the market now to beat the traditional build-up during the first of the year and in the spring. With less competition, now is the time to get into the market.”
Dean Rebhuhn, owner of Village Homes and Properties in Woodinville, echoed those comments. “We’re seeing buyers find opportunities, with sellers offering good pricing,” he stated. “Lifestyle decisions continue to drive sales. Even though rising interest rates make it more difficult for some buyers, pent up demand continues.”
Describing the market as bifurcated, with some listings coming on the market and sitting for several weeks and others that come on and immediately get multiple offers or above asking price offers, broker Frank Wilson said both buyers and sellers need to be prepared.
“Buyers still have to act quickly and put their best foot forward when making an offer,” stated Wilson, branch managing broker at John L. Scott, Inc. in Poulsbo. He also recommended relying on their real estate broker’s expertise in determining the value of the home that interests them in today’s market.
Sellers need to be “laser focused on price and condition,” advised Wilson, adding, “What your neighbor’s house sold for six months ago has very little bearing on your home’s value today.”
Wilson also noted buyers tend to focus more on their monthly payment instead of the price of the home. “If they need a home today, they may need to budget for higher monthly payments until they can refinance to a lower rate a year or two from now, when hopefully rates will begin to go down again.”
“Even with more choice on the market than we’ve seen in several years, pending sales fell last month,” remarked Matthew Gardner, chief economist at Windermere Real Estate. “The cause is almost certainly rising mortgage rates, which rose from 6.65% early in the month and ended above 7.1%; this is clearly having an impact on buyers,” he added.
Gardner believes many buyers may remain sidelined until mortgage rates stabilize, but added he had “bad news for those buyers who are sitting on the fence waiting for home prices to implode.” He expects regional home values will turn modestly negative in 2023, but said, “those who hope to pick up a home ‘on the cheap’ are likely in for a long wait.”
“Real estate pros like this kind of market,” proclaimed Dick Beeson, managing broker at RE/MAX Northwest in Tacoma/Gig Harbor, explaining “They get to display their negotiation and marketing skills,” he explained.
Beeson believes “We are now experiencing a balanced market. I said the new normal was 2-to-4 months of supply back two or three years ago. We’ve finally reached that point. This is the new normal until interest rates go down.”
A few of the Northwest MLS spokespersons commented on new construction.
“Homebuilders are lowering prices and some are offering incentives such as interest rate buydowns to attract sales,” reported Rebhuhn.
“While we don’t track land on these MLS reports, we are seeing a definite uptick in activity with undeveloped land,” stated Leach. “Rentals now under construction and being completed are at the highest numbers in Kitsap County’s history.” While rental prices should be more competitive with expanding choices, he said landlords may offer concessions, but he doesn’t expect rents to be reduced. Nevertheless, he remarked, “There should be ample housing for every budget and lifestyle in the coming year.”
Also commenting on interest rates was the National Association of REALTORS®, which noted the slight dip in mortgage rates this week despite the Federal Reserve approving another 0.75% rate hike for the fourth time this year.
NAR cited Freddie Mac’s 30-year fixed mortgage rate that fell to 6.95%, down from 7.08% the previous week. “It seems that rates have already priced in some of the effect of the Fed’s higher interest rates. It is also promising that this was likely the last rate hike of this magnitude, as indicated by the Fed,” wrote Nadia Evangelou, NAR’s senior economist and director of forecasting.
Evangelou also speculated “a return to the sky-high interest rates of the 1980s isn’t likely in today’s economy” and drew comparisons to payments now with those of 40 years ago in today’s money. “In real terms, after adjusting the median home price for inflation, the monthly mortgage payment was about $450 higher in 1982 than it is now,” she wrote in a blog, adding, “If mortgage rates were currently 9% the monthly mortgage payment would be comparable to 1982 rates. Thus, in real values, current buyers pay less for their home purchase than buyers who purchased their home 40 years ago, although home prices are significantly higher now.”