A few years ago, some Seattle-area residents had a lucky window to buy a home without adding much to their monthly costs.
With mortgage rates at rock-bottom levels, some tenants found that they could afford a monthly mortgage payment without spending much more than they were already paying in rent. That opened the door to homeownership, particularly for aging millennials willing to move to the suburbs.
Those days are long gone.
Owning a home in the Seattle area now comes at an 88% premium — meaning the median monthly mortgage payment costs 88% more than the monthly rent for the same home, according to a recent Redfin analysis. That is the fifth-highest premium among major metro areas in the country. California metro areas rank in the top four spots.
One major culprit: mortgage rates. The average rate on a 30-year fixed mortgage currently stands at 6.6%, up from about 3% at this time in 2020 and 5% a year ago. Especially in an expensive market like Seattle, where a housing shortage has already driven prices up, monthly payments can snowball quickly as rates rise.
“That adds a lot to borrowing costs, which makes buying a lot less affordable compared to renting,” said Redfin chief economist Daryl Fairweather.
Redfin’s analysis compares a $6,040 mortgage payment for the median Seattle-area home to $3,208 rent for the same home. The Seattle-based real estate brokerage analyzed the median Seattle-area home costing about $761,000 and assumed a 5% down payment, homeowners’ insurance and property tax costs and a 6.5% mortgage rate. The analysis included detached single-family homes, town homes and condos.
A bigger down payment can help, but only so much.
With 20% down, Zillow estimates the mortgage payment on a typical Seattle-area home was about $3,400 in April. (Zillow and Redfin each have separate methodologies for estimating home values.)
For many people, the financial leap to afford a home can feel even more extreme.
The median two-bedroom apartment in the Seattle area (also spanning Tacoma and Bellevue) rents for $1,726, according to Apartment List. Even a couple already spending $2,500 for a two-bedroom apartment in Seattle’s Capitol Hill neighborhood could face a steep jump in monthly costs to buy a home instead of renting.
As mortgage rates and the costs of other goods rose in 2022, “incomes were not keeping up,” Zillow senior economist Nicole Bachaud wrote in a recent report. “And that started to impact homebuyers’ ability to afford monthly mortgage payments, beyond the hurdle of saving for a seemingly ever-growing down payment.”
The high cost of ownership is already slowing the housing market. The number of pending home sales in King County last month was down 28% from a year earlier. The median King County home price in April, $875,000, was down 12% from a year earlier, according to the Northwest Multiple Listing Service.
For those still looking despite higher rates, Bachaud suggested home shoppers look for down payment assistance or spend extra money up front to secure a lower mortgage rate and called on local governments to allow denser forms of housing.
While renting is more affordable now, Seattle-area renters could soon be squeezed, too.
Seattle-area rents leveled off this spring after shooting up earlier in the pandemic, but the rising cost of homeownership “is probably a precursor to increasing rents in Seattle,” Fairweather said, “because people are going to move to renting.”
