In a typical spring boost, Seattle-area home prices ticked up slightly from April to May. But compared with a year ago, home prices took another dive across the region as high mortgage rates and economic concerns continued to weigh down the market.
Higher rates and lingering uncertainty in the economy mean “the sense of urgency for buyers to get into a home has really changed,” said Seattle Redfin agent Bliss Ong.
The median single-family home in King County sold for $910,000 in May, down 9% from a year ago, according to data released Monday by the Northwest Multiple Listing Service. The decline was especially dramatic in North King County and in Seattle, where median home prices dropped 17% and 12%, respectively. Condo prices were down 5% countywide.
The median Snohomish County home sold for $780,000, down 4%. The median Pierce County home sold for $544,990, down 6%. The median Kitsap County home sold for $557,450, roughly flat from this time a year ago. (Even so, Kitsap hasn’t been immune to the market downturn. In April, the median price there was down 8% year over year.)
The declines underscore just how far the market has shifted from 2021 and 2022. King County home prices peaked at this time last year, when the median home cost a record high of nearly $1 million, and prices were up 15% from a year earlier.
“Certainly, we have seen a correction,” Windermere Chief Economist Matthew Gardner said, “which makes sense because the market was artificially overheated” by ultralow mortgage rates from 2020 through early 2022.
Average mortgage rates hovered between 6.3% and 6.6% in May, the highest level since the fall of 2008, according to Freddie Mac. (Rates had just begun to climb last spring, and were averaging about 5% in May 2022. Average rates were about 3% in May 2021.)
Higher mortgage rates make monthly mortgage payments more expensive and push homeownership further out of reach for young and middle-class homebuyers. In May, pending sales were down 25% in King County, 30% in Snohomish County, 24% in Pierce County and 28% in Kitsap County, according to the listing service.
Home prices haven’t fallen nearly enough to offset dramatic price hikes earlier in the pandemic: King County’s median home price is 30% higher than it was in May 2019. Prices are up 56% in Snohomish County, 47% in Pierce County and 45% in Kitsap County.
“Affordability is a very significant worry,” Gardner said.
High mortgage rates push more buyers toward lower-priced homes. Ong said many shoppers who in recent years would have looked for Seattle homes costing $1.5 million or more are now shopping in the $900,000 to $1.4 million price range, adding to competition and driving bidding wars for those homes.
While some buyers are getting acclimated to higher rates, many first-time buyers who started searching a year ago and watched rates climb are bowing out of the search, Ong said. Add to that general uncertainty about the economy. “There just is a little bit more worry out there than there was,” Ong said.
Shoppers are pickier, and willing to back out of a deal if issues arise during an inspection, she said. “Buyers are starting to take back a little bit of their rights in that regard.”
Even as the market cools, there are still fewer homes for sale than potential buyers. Nearly 34% fewer homes were newly listed for sale in May in King County than a year ago.
It would take between four and five weeks to sell all the homes for sale in King County at current demand, according to the listing service. That is an improvement from the doldrums of winter, when it would have taken about two months. At the peak of the housing market in 2021 and 2022, it would have taken two weeks or less. Some groups consider four to six months of inventory a balanced market, though Gardner says three months is more realistic in a competitive market like Seattle.
“We have got an absolute ton of homeowners with mortgage rates at or below 3%,” Gardner said. “Why would anyone move and lose that never-seen-before and likely never-seen-again mortgage rate?”
That dynamic is likely to keep inventory low throughout at least the end of this year, he said.
Gardner expects mortgage rates to stay around 6% through the rest of the year, and believes Seattle-area home prices will end the year about 5% lower than in 2022. A lack of new homes for sale will keep that drop from being more dramatic, he predicted. “I just don’t see where the inventory is going to come from.”
