Seattle-area home prices dipped last year at levels unseen in more than a decade, signaling the hit the region’s housing market has suffered since high mortgage rates dampened buyer and seller enthusiasm.
The price drops, reflected in year-end data the Northwest Multiple Listing Service released Thursday, are a sign that the Seattle-area housing market is “finally coming back to reality,” said Mason Virant, associate director of the Washington Center for Real Estate Research at the University of Washington.
The “off-the-charts” double-digit price spikes of the early pandemic years have given way to a smaller “correction,” Virant said.
The 2023 cooldown played out differently across Western Washington. While home prices ticked up in more affordable rural counties, such as Clallam, Cowlitz and Skagit, they dipped 3% to 4% in counties closer to Seattle.
The median home price reached about $876,000 in King County, down 3%; $737,500 in Snohomish County, down 4%; and $535,000 in Pierce County, down 3%. This was the first time median home prices fell year-over-year in all three counties since 2011. (King County prices last dipped by 1% in 2019.)
One outlier in the region was Kitsap County, where the $540,000 median price was flat from 2022 to 2023.
But even as prices fall, would-be homebuyers are finding little comfort.
Across all four counties, a household earning the county’s median income cannot afford the mortgage on the median-priced home, according to a Washington Center for Real Estate Research housing affordability index.
In fact, median households can afford the median priced home in only three of Washington’s 39 counties. The analysis, using data from the fall, assumes a 20% down payment and defines affording a payment as spending no more than 25% of gross household income on the mortgage payment.
The price dips aren’t enough to offset the rates at which prices skyrocketed early in the pandemic and until 2022. The median home in King County now costs 30% more than in 2019.
With the rise of remote work, outlying areas have experienced even more dramatic growth since 2019: 48% in Snohomish County and 45% in Pierce.
Facing high prices, some buyers turned to more affordable condos.
Although single-family home prices dropped in King County, the median condo sold for $509,000 in 2023, up 2% from 2022.
That was largely driven by Seattle, where the median condo price ticked up 4% to $558,000. On the Eastside, condo prices dipped 1% to $617,000.
Condos in Seattle can be units in condo towers or accessory dwelling units — essentially small single-family homes — sold as condos under city zoning rules.
Home shoppers who could have afforded single-family homes in 2020 or 2021 are now priced out of those markets and looking to more affordable condos, Virant said.
Few listings, fewer sales
Fewer homes sold in 2023 than in prior years, when ultra-low interest rates allowed many new buyers to jump into the market. The market began to slow in 2022 and continued in 2023. Year over year, sales of single-family houses and condos plummeted 24% in King County, 26% in Snohomish County, 27% in Pierce County and 22% in Kitsap County.
Facing high interest rates, many shoppers found their mortgage payments would be “significantly more than what they could potentially rent for,” said Jenny Wetzel, an agent with Windermere Abode in Tacoma.
“So, people are now opting to rent rather than buy — or they’re being forced to,” Wetzel said. “It’s not affordable for many homebuyers right now to purchase.”
Mortgage rates fluctuated throughout 2023 and hit nearly 8% in October, the highest level since the year 2000.
Throughout 2023, Wetzel heard from curious potential home shoppers who successfully qualified for a loan, but then decided against it “because of the significant financial strain that it would put on them,” she said.
And buyers aren’t the only ones who got cold feet last year. Fewer homeowners listed their homes for sale, too.
King County saw 27% fewer single-family houses and condos newly listed compared with 2022. That was a far larger drop than the 8% decline from 2021 to 2022. Listings dropped even more in Snohomish County (33%) and Pierce County (30%).
Economists and real estate agents point to the lock-in effect, in which many would-be home sellers don’t want to let go of their low mortgage rates. That lack of homes for sale is likely keeping prices from falling further.
New construction could help ease the stalemate, but high construction costs, restrictive zoning and other factors keep a lid on new development. The number of new-construction homes sold through the Northwest Multiple Listing Service dipped 5% in King County and fell more dramatically by 27% in Pierce County.
Snohomish and Kitsap counties both saw an uptick in the number of new-construction homes sold in 2023.
“The bottleneck is the [lack of] availability of homes,” Wetzel said.
Silver lining for buyers
Last year did bring one bright spot for homebuyers: fewer bidding wars.
On average, single-family homes in King County sold for just a half a percent above their list price. Compare that with 2021 and 2022, when the average home sold for 7% and 4.5%, respectively, above its list price.
Buyers also enjoyed more time to decide on a home, with listings moving off the market more slowly. Throughout 2023, it would have taken between five and six weeks to sell all the single-family homes for sale in King County, given buyer demand. That’s a significant change from less than two weeks in 2021, although the 2023 housing market still favored sellers.
Activity has picked up since the beginning of this year, Wetzel said, but the slower market continues to give home shoppers more breathing room and protections.
“We’re not seeing nearly as many buyers willing to remove their contingencies, such as the home inspection,” she said. “It’s still happening, but it’s just not as prevalent.”
