Q1 2024
2023 was a unique market for real estate in Seattle that experienced some major shifts in activity primarily tied to mortgage interest rates. The year ended on a good note though as December 2023 saw a significant drop in mortgage rates over where they were at in October and November. The best word to describe 2023 as a whole was sluggish. Interest rates came into 2023 elevated into the range of 7% after skyrocketing in 2022. This range became the new normal in 2023 after years of low rates were stopped in the Federal Reserve’s fight against inflation. Unfortunately for most home buyers who aren’t able to purchase with cash these high rates combined with already high prices pushed some would-be buyers to wait or out of the market entirely.
Although price growth stalled due to the combination of substantially higher interest rates coupled with growing inventory, the market overall has positioned itself to be more balanced between buyers and sellers and “healthier”. Inventory levels have risen from less than half a month in 2022 to near 2 months as 2024 starts. Yet inventory remains stagnant in accordance with typical seasonal patterns, and low inventory persisted to pressure home prices upward in the region, which were up about 5% year-over-year. Strong home price gains over the course of the year indicate that home prices in most Washington state markets have fully recovered from the 2022 losses and are reaching new highs once again.
With a balanced market considered to be 4 months of inventory this shift in more constrained inventory entering 2024 is expected to not only continue but potentially get worse. The primary driver of that is tied to interest rates and the “lock in” effect we are seeing where existing homeowners who might be move up resellers are not willing to put their property on the market when they may be moving to a mortgage interest rate that is double of their current rate and therefore a significantly higher payment.
As mortgage rates start to come down from the 6-7% range during the year and get into the 5’s the expectation is more buyers will enter the market. However, the amount of properties for sale by re-sellers will still be limited as it is thought that rates would need to get into the low 5’s or 4% range to push would be sellers who do not have to move to consider putting their property on the market.
Northwest MLS members reported 64,208 sales of residential homes and condominiums during 2023. The total closings were valued at more than $48 billion, with residential homes accounting for nearly 87% of the total sales. Condominiums made up the approximate remaining 13%. Compared to 2022, there were 19,829 fewer sales in 2023, a decrease of 23.6%. This was the second year-over-year decrease in sales since the record highs of 2021, where the total number of closings was 107,354 (the first time the sales volume topped the 100,000 mark) and the value of sales was just over $75 billion.
The decrease in sales volume in 2023 is indicative of the persistent low inventory paired with high interest rates, particularly in the more populous King and Snohomish counties. Brokers also reported fewer pending sales during 2023 compared to 2022, with year-over-year volumes down 18.24%.
Brokers added 81,612 new listings during 2023, down from the previous year’s volume of 110,294. This represented a significant drop of 26.01% of available inventory. Activity for new listings, including single family homes and condominiums, peaked in June with 9,481 added listings.
On average, there were 9,579 active listings in the NWMLS database each month in 2023. This is a nearly 5% decrease from 2022’s average of 10,075 and is consistent with reports of persistently low available inventory.
Inventory as measured by months of supply averaged 1.77 months overall for 2023, improving on 2022’s average of 1.464, but still well below the balanced market range of 4-to-6 months inventory.
January 2024 saw a 3% increase in closed sales transactions year-over-year, an improvement from December 2023’s year-over-year change in closed sales transactions, which was a decrease of 11%. Overall, the median price for residential homes and condominiums sold in January 2024 was $593,500, up 6.5% when compared to January 2023 ($557,250).
The median sales price increased year-over-year 19 out of 26 counties, with the highest median sale prices in King ($760,000), San Juan ($757,000) and Snohomish ($700,000).
The volume of homes on the market has continued to decline throughout Washington with 15 out of 26 counties seeing a year-over-year decrease. There were 7,084 active listings on the market at the end of January 2024, a decrease of nearly 14% compared to January 2023 (8,220).
Despite the decrease in available inventory, 13 of the 26 counties in the report experienced an increase in the number of homes sold year-over-year.
Seller reluctance has led to a continued decline in year-over-year inventory levels, an overall 14% decrease of active listings on the market. Encouragingly, year-over-year sales transactions saw a 3% improvement over January 2023. These low levels of available for-sale inventory have led to increased competition amongst buyers, producing a nearly 7% year-over-year increase in median home prices across the western Washington counties covered by the NWMLS. As noted above the expectation is that as 2024 progresses, interest rates continue to decline and more buyers re-enter the market that competitive multiple offer situations are likely to return and those properties selling will frequently sell above the list price again.