Understanding the real estate market shift: Location is key!

There is an old saying in real estate: location, location, location. A property’s location has the biggest influence on its value. Through the pandemic years, we saw changes to this idea due to the ability to work at home. Before remote working became more common, homes located in neighborhoods close to job centers, such as Seattle, were at a premium. They still are, but with more people working from home, there was a huge rush to suburban and even rural locations which quickly increased home values in those neighborhoods. Couple this re-organization of our communities with the lowest interest rates in history and you have an incredible run-up in prices over a two-year period.

In Snohomish County, in April 2020, the median price was $520,000 and in April 2022 the median price was $830,000 – this is a 60% increase in 2 years! In King County, in April 2020, the median price was $720,000 and in April 2022 the median price was $995,000 – this is a 38% increase in 2 years! In contrast, historically annual price appreciation is closer to 3-5%.

No Regrets
For the buyers who bought during these peak times, it is understandable that there is some angst over the shift in the market. New homeowners can find comfort in the low rate they secured, which created a lower payment and offsets the purchase price. It is important to understand that real estate as an investment tool is best when it’s a long-term hold investment, and while future price appreciation is anticipated, it will be at more historical norms.

Finding balance
Two factors are helping to slow the market. First, since the start of 2022, we have seen a 2-point increase in interest rates which has started to level out price appreciation yet is still below the 30-year average of 7.5%. In addition, the work-from-home (WFH) phenomenon has settled in. The companies that decided to adopt the WFH model did already, and many of those employees relocated in 2020-2021. Some companies are having their employees return to the brick and mortar either permanently or periodically, which has slowed the move to relocate away from job centers.

Higher interest rates, WFH finding its balance, and inflation have created the shift we are experiencing in the market. While it might give some an uneasy feeling, it is in truth a good thing. The price growth that we saw from 2020 to 2022 was not sustainable and returning to historical appreciation norms will put us back in a healthy balance.

Prices and Equity
We are coming off the peak prices we saw in April of 2022 as the market finds its footing. June median price in Snohomish County is down 4.82% from April and in King down 6.53%. Bear in mind though, that the median price in Snohomish County is up 20% complete year-over-year (the last 12 months over the previous 12 months) and in King 13%. And if we look at the last 10 years, the median price in Snohomish County is up 167% since June 2013 and in King by 119%. Equity growth is abundant, and sellers are making great returns. This must be kept in perspective as we return to balance in the market and prices level out!

Helpful info for buyers
This move towards balance has created more inventory in the market giving buyers more selection and time to weigh their options. Where before a buyer had only hours to make one of the biggest decisions of their lives, they can now ponder and assess over the course of days. Buyers are now securing contracts with contingency protections to ensure their due diligence is timely and secure. We have seen an increase in days on the market overall, but the days on market for the desirable “cream puff” listings are still very short. And actually, the new assortment of inventory is a bit jumbled. Some sellers are not ready to accept the balance in the market and have their listings misplaced in the wrong price range. This is confusing to buyers and requires a quick and thoughtful assessment of value by their broker so they can make a clear decision. Aligning with a skilled broker can ensure a buyer does not overpay but also makes sure a buyer doesn’t miss out on a great home that will go quickly.

Some neighborhoods are still in a seller’s market environment, and some are in balance, it depends! A seller’s market is considered 0-2 months of inventory, a balanced market is 2-4 months and a buyer’s market is 4+ months. Additionally, some neighborhoods’ market conditions vary by price point, so it is important to take a forensic approach to the analysis of each location from a macro to a micro perspective. For example, in southwest Snohomish County between $700,000-$800,000 it is still a seller’s market; but from $800,000-$900,000 it is a balanced market.

The numbers
In Snohomish County, days on market for homes that sold in June for over list price was 5 days, which accounted for 49% of the sales with an average escalation of 5%. This illustrates that there are still great homes that buyers are flocking to, but it is imperative that they are properly positioned in the market. This takes skill, research, and a reasonable approach to find this success as a seller. Conversely, 34% of sales in June sold under list price or took a price reduction and averaged 12 days on market and 27 days on market respectively. This mash-up requires sophisticated navigation and reasonable cooperation, but ultimately sellers will find success because they are sitting on a mound of historical equity growth.

In King County, days on market for homes that sold in June for over list price was 5 days, which accounts for 50% of the sales with an average escalation of 6%. Conversely, 30% of sales in June sold under list price or took a price reduction and averaged 13 days on market and 27 days on market respectively.

As we head into the dog days of summer, I am digging deep into the data on this new market and taking inventory of the opportunities it provides for both sellers and buyers. If you are curious about the value of your home in today’s market or are considering a purchase, please reach out. No pressure and no obligation. I’m happy to simply chat about how these changes may affect your long-term goals and I am dedicated to providing you with information that helps you make the most informed decisions for your future.