“How’s the market?” is a question I am asked all the time. It is a common and understandable topic in casual conversation over the neighbor’s fence, at a party or family gathering. Our market is currently shifting…inventory is increasing, days on market are lengthening and we are seeing a slowdown in price appreciation. Believe it or not, this is providing great opportunities for both buyers and sellers.
What does a slowdown in price appreciation mean? At the end of the year, we average the last 12 months of median price and compare it to the previous 12 months of median price. For 2022, we will show a positive growth percentage, but that percentage will be lower than it was earlier in the year. We had a very significant bump in prices in Q1 of 2022 that will level off as we complete 2022.
Breaking down the numbers in Snohomish County, in April of 2020, the median price was $520,000 and in April of 2022 the median price was $830,000, a 60% increase in 2 years! In King County, in April of 2020, the median price was $720,000 and in April of 2022 the median price was $995,000, a 38% increase in 2 years! That pace is unprecedented and unsustainable.
To dig a little deeper, Snohomish County had a 35% increase in median price from April 2020 to December 2021 (a period of 20 months). The next 4 months, December 2021 to April 2022 Snohomish median price rose 19%. This 4-month stretch of price growth is highly unusual and unsustainable. Prices will continue to rise, just at a slower pace and it is very unlikely that we will return to prices below the December 2021 level. The median price in May 2022 is $810,000 indicating the median will settle somewhere between the April 2022 peak and where we landed at the end of 2021.
We must remember that we were celebrating price growth at the end of 2021!
In King County the numbers are similar but not as extreme, and still well above average with a 22% gain from April 2020 to August 2021 and then a 14% gain in 9 months, from August 2021 to April 2022.
This is where perspective comes in and where pricing can get a little tricky for sellers. These market changes show why it would be unrealistic to expect the peak prices of Q1 2022 in the current spring market. The combination of the lowest inventory levels and lowest interest rates in history that took place in Q1 2022 was the perfect storm that created intense price growth over a short period of time. Now we must navigate the new environment as we chart our real estate goals. Three main factors have led to this much-needed tempering in price growth: inventory, interest rates/inflation, and affordability.
Inventory has finally started to grow although it is still a seller’s market. In Snohomish County, 2021 was an extreme seller’s market that never crested over 0.6 months of inventory; that’s just over two weeks! A seller’s market is defined as 0-3 months of inventory, a balanced market as 3-6 months, and a buyer’s market as 6 months plus. In May 2022, we had 0.9 months of inventory. We have started to see more homes come to market, providing buyers with more selection. For example, in April 2020 there were 996 new listings; in December 2021 there were 525 new listings; in April 2022 there were 1,503 new listings (almost 3x as much over December), and in May there were 1,654 new listings. This additional selection is providing buyers the long-awaited option to find housing and has started to reduce the number of multiple offers which has put downward pressure on prices. When there is more selection, prices do not escalate as quickly.
In King County, for May 2022, we had 0.9 months of inventory. In April 2020 there were 2,138 new listings; in December 2021 there were 1,103 new listings; in April 2022 there were 3,353 new listings (just over 3x as much over December), and in May 2022 there were 3,698 new listings.
Interest rates have also grown over the last two years and even more specifically since the first of the year. We are currently hovering around 5.5%-6%. At the start of 2022 we were hovering around 3%. The Fed finally gave way to the promise that rates would rise, which was a necessary tool to combat inflation. While 3%-4% rates were a dream, they were not a long-term reality. The 30-year average for interest rates is 7% which highlights that 5-6% is still a great rate!
It is understandable that a 5-6% interest rate pales in comparison to the historic lows we had, but we are unlikely to see 3-4% again soon. Rates as low as 3% in Q1 2022 played into the rapid acceleration in price because it made the buyer audience larger when we had the least amount of inventory available. The good news is that while rates had a quick 2-point increase from March 2022 to May 2022, they have seemed to stabilize. This is our new normal for now, while future increases in 2023 are expected. The good news for buyers who secured a home in Q1 is they also secured the lowest debt service in history, so they should be very happy.
Affordability has been a challenge for many, especially first-time home buyers. Affordability challenges at December 2021 prices were real, but the rise to April 2022 levels simply removed buyers from the market. As price appreciation slows and prices level off due to the shift in market conditions, some buyers will be able to re-enter the market and start to secure their wealth-building asset that also augments their lifestyle.
So, what does this mean? The word that keeps coming to my mind is perspective. We have experienced one of the most extreme seller’s markets of our time, which resulted in rapid price growth for sellers and limited choices for buyers. That is starting to ease up and we need to celebrate this! We are heading toward historical norms and while that is happening, we will need to keep the crazy Q1 price growth in a box alongside the unicorns and rainbows for the lucky sellers that found the pot of gold and buyers who secured the lowest rates ever. Good for them, but still good for anyone who has owned their home for longer than two years, as the amount of seller equity is abundant.
Real estate has always been a long-hold investment and we have lost sight of that with the abnormality of the last two years. Most importantly, real estate is a lifestyle decision. Our homes provide us shelter, community, features, and benefits. We make memories, find comfort, and if we are lucky, we can match our home to our lifestyle needs and build wealth at the same time.
If you are curious about the value of your home in today’s market or are considering a purchase, please reach out. Even if you just want to talk these changes through and understand how they might affect your long-term goals, please reach out. I am dedicated to providing you with information that helps you make the most informed decisions for your future.
Every year, my office comes together to provide summer camp scholarships for local kids who may not otherwise have the opportunity to experience the adventures of overnight camp. This year we donated $16,300 to YMCA Camp Orkila and Camp Colman! Overall, since 1994, we are responsible for $230,000 in summer camp scholarships for local kids in need. I am so proud to be part of an office that cares so deeply for the community!