There is no doubt that 2022 has been one of the most eventful years in real estate. This is saying a lot coming off the record-breaking years of the pandemic. We will probably never see anything like 2020 and 2021 again. During this time the market responded to a historical event that motivated the rearrangement of our communities due to societal shifts all while we had the lowest interest rates ever. It was a doozy of a time! Demand was spurred by the option to work from home; buyers craved the perfect space to be at home and cheap money made these moves plentiful.

The market had a slight pause at the onset of the pandemic in the spring of 2020 and then it took off like a freight train. Heightened demand, cheap money, and low inventory caused prices to increase at the most significant rate we have ever seen. How was this train barreling down the tracks going to slow down? The speed at which this train was moving was not safe or sustainable. The only way to stop it was an increase in interest rates.

In Snohomish County, from April 2020 to the peak (April 2022) prices grew by 60%, and in King County, from April 2020 to the peak (May 2022) prices grew by 39%. Bear in mind that historical norms for annual price appreciation are 3-5%, making this two-year time period unlike any other! The Fed needed to make the cost of borrowing money more expensive in order to slow down inflation. This was applicable to the entire economy not just real estate, causing short-term rates to increase for credit cards, car loans, and lines of credit, as well as long-term mortgage rates.

Since the peak, interest rates have increased by 1.5% and this has put downward pressure on prices and slowed demand. There is a rule of thumb in our industry called the 1/10 rule: for every 1-point change in interest rates, buying power shifts by 10%. For example, if a buyer is pre-approved for a $750,000 purchase at a rate of 5.5% and then the rate increases by 1-point to 6.5% in order for the buyer to have the same monthly payment they must decrease their purchase price by 10% to $675,000. This rule applies when rates go down too, which led to the fierce increase in prices over the pandemic years.

Buyers most often make buying decisions based on the monthly payment and it is no wonder that the new interest rate environment has caused prices to decrease. As you can see from the graph, prices in Snohomish County are down from the peak by 13% and down in King County by 12%, which very much reflects the 1/10 rule, as rates went from 5% on average in April to 6.5% in September. Month-to-date this October, prices in Snohomish County remain even over September prices, and are up slightly in King County.

Expect home prices to adjust based on rate increases, decreases, or stabilization based on the 1/10 rule, not because the sky is falling. Buyers that bought at or around the peak need to keep the faith and understand that real estate is a long-term hold investment with the average homeowner spending at least 8 years in their home. A correction in the market is solved with time and most likely these buyers secured their homes with very low debt service making their payments lower to help them sustain this adjustment. The Fed’s plan is working to slow down the train and help us return to a more sustainable market.

While interest rates are higher than they have been they are still lower than the 30-year average of 7.5% and prices are coming off the peak, but not crashing. In Snohomish County, prices are up 40% from April 2020, and in King County, they are up 22%. Most importantly, long-term price growth since Q3 2013 is up by 138% in Snohomish County and up 104% in King County. In fact, more than 50% of homeowners in WA state have at least 50% equity in their homes making them prepared to make a move when their life-needs will motivate a change. Keeping all of this in perspective will lead sellers to successful moves with a calm understanding of our new normal after an unprecedented time in history.

Buyers are enjoying an increase in selection and more time to make their buying decisions. They now have time to discern these big life changes and to analyze the financial aspect of a move versus needing to make a decision in a 15-minute showing appointment before a home was gobbled up in multiple offers. They are also afforded the opportunity to do further due diligence on the properties they are interested in and negotiate contract contingency terms that protect them throughout the transaction. It is also not uncommon for work orders that a buyer has called out to be added to a contract. We are seeing the occasional multiple offers on homes that are special and priced perfectly, so aligning with a broker who can identify value and opportunity is key so a buyer doesn’t miss out.

Another important aspect for a buyer to consider is the set-up of their financing terms. With rates higher than they have been and the age-old strategy of managing monthly payments always in play, creative financing options such as rate buy-downs and ARMs (Adjustable Rate Mortgages) are additional options to consider when looking at the overall financial picture of making a purchase. Make sure the broker you work with has a collection of reputable lenders that can provide options as each lender will have different programs to choose from.

We are even seeing sellers pay credits on behalf of buyers to buy their rate down in order to make the monthly payment more attainable. The negotiations we are seeing in this market are being dictated by buyer affordability which requires collaboration. Since most sellers have large amounts of equity, we have seen successful meeting-of-the-mind solutions to create win-win outcomes for both sides. As the market comes into balance we are seeing more of a give-and-take and the importance of navigating these changes is critical.

During these times when a market shifts, the cream rises to the top. The listings that are well prepared for the market and priced appropriately will be the winners. Cutting corners and overpricing will lead to frustration and loss. Sellers need to seek out trusted advisors who can properly analyze the new market conditions, bring perspective to their goals, keenly negotiate, and assist them in showcasing their home in the best light possible. Buyers need to align with a professional who understands current market values, can negotiate with data and rapport, assist them in their lending options and help create win-win outcomes.

Brokers like this are not the norm. We are coming off of two years of trying to hold onto a speeding train and now we have the opportunity to steer it through expertise. Expertise is earned and I could not be more passionate about helping my clients navigate the new normal with the tools and experience I bring to the table. I am invested in my clients’ goals and strive to empower strong decisions through thorough research, sound counsel, and clear advocacy. Please reach out if you are curious about how today’s market matches up with your goals or if you know someone I can help.

Did you know Windermere is the official real estate company of the Seahawks?!

The best part of this partnership is our #TackleHomelessness campaign. For every defensive tackle made by the Hawks at their home games throughout the season, The Windermere Foundation donates $100 to Mary’s Place. Our current total is over $200k donated over the last 6 seasons of partnering with the Seahawks. 

Since 1999, Mary’s Place has helped thousands of women and families move out of homelessness into more stable situations. Across five emergency family shelters in King County, they keep families together, inside, and safe when they have no place else to go, providing resources, housing and employment services, community, and hope.

As we experience the fall equinox, when the length of a day is equal to the night, we are also experiencing a similar balance in the real estate market. We define a balanced market to have 2-4 months of available inventory. This means that if no new homes came to market, we would be sold out of homes in that amount of time. Month-to-date in September, we have 2.1 months of inventory in King County and 1.7 months in Snohomish County, after having 1.6 months in King and 1.5 months in Snohomish in August. This has been a stark contrast to the spring months when we bottomed out at 0.3 months in both counties in March.

How we navigate the changing environment is key! The reasons why people buy and sell real estate is often rooted in life changes. Yes, real estate is an investment and often leads to financial gain, but moves are more likely motivated by life circumstances that create a desired change in housing. So how do you find success in a market approaching or already in balance, versus an extreme seller’s market?

First, market preparation should not be taken lightly. How a home is presented to the market is instrumental in setting it apart from the increase in the competition (more inventory), so it stands out and sells quicker. As a part of my process (in all markets), I walk through the property with my sellers and we devise a plan to improve, clean, and sometimes update the property so it shows as favorably as possible in order to attract the largest pool of buyers possible. With more selection, this preparation is paramount to getting the highest return and shortest market time.

I will often refer to my preferred list of contractors to help take on our prep list and I can also consult on what items are of the highest priority to improve, so we do not cut into profit. Windermere even has a no-upfront, low-cost loan program, The Windermere Ready Program that allows for quick and inexpensive access to funds in order to get property preparation done seamlessly.

The second key element is pricing. In King County, prices are up 10% complete year-over-year and up 18% in Snohomish County. However, prices are down 10% from the spring 2022 peak in King County and 12% in Snohomish. Price appreciation has started to decelerate (slow down) year-over-year, but we still have above-average price gains when we compare 2021 to 2022. Not to mention, we are sitting on top of a decade of positive price appreciation. The long-term equity growth a seller has is a healthy perspective to set their expectations on rather than holding on to the extreme environment of the spring market that is not returning.

With that said, sellers have amazing gains to enjoy, and not overshooting their price will lead to the most profitable and drama-free outcome. In King County in August, 37% of homes sold at or above the list price, and 34% in Snohomish County; that is 1 in 3 homes! These homes were brought to market with accurate pricing that attracted a buyer pool that understood the value and was motivated to offer. Market time was also shorter. Homes in King and Snohomish Counties that sold in 15 days or less averaged a list-to-sale price ratio of 100% and homes that sold in 15-30 days took close to a 5% hit on list price. When the days on market get longer the hit on list price gets even higher. It is important to get the pricing right in the beginning. Thorough research, properly focused perspective, and clear communication all play into this success.

Lastly, negotiations have changed. In the extreme seller’s market, it was all about buyers waiving all their contingencies and a willingness to pay high amounts over the list price to win a home because the selection was low and money was cheap. Now that interest rates have increased, prices have been tempered by the cost of a loan, putting downward pressure on the peak prices from the spring. This is a sign of the market coming into balance. All of these financial factors hinge on one another and are related. We must understand this when we establish a price and head into negotiations. We need to know when to lean into the data and draw a line in the sand on our value, and when to be open and acquiesce to a solution. Having the emotional intelligence to see the big picture and work towards win-win outcomes serves everyone well. This muscle is being rebuilt across the industry; make sure you are aligning with a professional who is well-researched, calm and confident.

What has been really positive about this shift is the ability for a buyer to be a bit more nimble with their move, especially if they have a home to sell. Before, there was a stop-gap in the market because if a seller who was a buyer had to sell their home in order to buy, they were fearful that they would not find a place to live and would have to move twice. Now we are seeing home sale contingencies happen, and buyers whose homes are under contract are making offers subject to those successful closings. It has also allowed for less-rushed due diligence, which is much more comfortable and reduces risk.

One last element I will add is that market conditions vary from neighborhood to neighborhood and price point to price point. Another element we must be aware of as we move away from the extreme is that we cannot make sweeping statements about the market. Some markets are in balance, some are still a seller’s market, and some are leaning towards the favor of buyers. The detail and care that is required to properly educate our clients are more important than they have been in some time and one that I take great pride in.

The answer is often, “it depends” which is followed by a stockpile of research, discernment, and communication in order to formulate a strategic plan and create a successful outcome. It is always my goal to keep my clients well-informed and empower strong decisions. Please reach out if you are curious about the success you can find in our new market. As stated above, life changes often motivate moves, and helping people navigate these huge, life-changing moments is my passion.

Did you know Windermere is the official real estate company of the Seahawks?!

The best part of this partnership is our #TackleHomelessness campaign. For every defensive tackle made by the Hawks at their home games throughout the season, The Windermere Foundation donates $100 to Mary’s Place. Our current total is over $200k donated over the last 6 seasons of partnering with the Seahawks. 

Since 1999, Mary’s Place has helped thousands of women and families move out of homelessness into more stable situations. Across five emergency family shelters in King County, they keep families together, inside, and safe when they have no place else to go, providing resources, housing and employment services, community, and hope.

There is an old adage in real estate: location, location, location. Where a property is located has the biggest influence on its value.  Through the pandemic years, we saw a shift in how the location was valued. Before remote working became more common, homes located in neighborhoods that were closer 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 the values of those neighborhoods. You couple this re-organization of our communities with the lowest interest rates in history and voila, you have an incredible run-up in prices over a two-year period.

In Snohomish County, in April of 2020, the median price was $520,000 and in April of 2022 the median price was $830,000 – this is 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 – this is a 38% increase in 2 years! Historical averages for annual price appreciation are closer to 3-5% making this record-breaking.

For the buyers who bought during these peak times, it is understandable that there is some angst over the shift in the market. They can find comfort in the low rate they secured, which created a lower payment and offsets the money they put towards debt service. They also need to understand that real estate has always been a long-term hold investment and that future price appreciation is anticipated, but at more historical norms.

Since the start of 2022, we have seen a 2-point increase in interest rates which has started to level out this wild price appreciation. Interest rates were at all-time lows and are higher now, but still below the 30-year average of 7.5%. In addition, the work-from-home (WFH) phenomenon has settled in. Meaning the companies that decided to adapt to the WFH model did already, and many of those employees made those moves in 2020-2021. Some companies are having their employees return to the brick and mortar in some cases permanently, but in most cases periodically. This has tempered the mobility from urban to suburban locations as that shake-out happened more immediately as a result of companies changing shape at the onset of the pandemic.

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.

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%. Even more so, 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!

This 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. Not to mention, 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. A buyer should be aligned with a broker that can help them discern their options.

You see, the new assortment of inventory is a bit jumbled, if you will. Some sellers are not leaning into 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. This ensures a buyer does not overpay but also ensures 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. Even more so, some neighborhoods’ market conditions vary by price point, so it is important that you take a forensic approach to the analysis of each location from a macro to a micro approach. 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.

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 sharpening my pencil on this new market and taking inventory of the opportunities it is providing for both sellers and buyers. It is also a market that will see attrition of brokers, as many only know how to exist in the feverish seller’s market. Each market takes skill, but navigating change is where we will see the cream rise to the top. If you are curious about how your real estate goal aligns with today’s market, please reach out. It is my mission to help keep my clients well informed and empower strong decisions.

We are holding a Food Drive through the month of July, with a goal to donate $5,000 to the Volunteers of America Food Banks across Snohomish County. You can donate here, or bring non-perishable donations to my office through the month of July.

Thank you!