Real Estate Market Update - January 2023
The greater Seattle-Bellevue real estate market was an absolute roller coaster in 2022 but appears to be on track as buyer activity began to increase in January 2023 following the typical seasonal trend from January to June. The quantity of homes going under contract in King County during the first half of January 2023 was 23% more than in the first half of January 2022.
As previously detailed in last month’s market update, Q1-2022 was probably the most intense sellers’ market of record. Mortgage interest rates increased from historic lows of 2.625% in late 2021 to 3.85% in March 2022. These low interest rates increased buyer demand resulting in multiple offers and historic rates of price increases. Buyer demand declined precipitously after interest rates reached almost 8% just 100 days ago. Now, in Q1-2023, buyer demand is increasing again after the decline of mortgage interest rates, and home values—30-year fixed rate mortgages appear to have stabilized at approximately 6%, and home values have decreased approximately 20% from Q3 to Q4 2022.
Mortgage interest rates are probably going to range from +/-5% to +/-6% in 2023, which are higher than previous years, however, it’s important to note that, because of the correlative decrease in home values, monthly mortgage payments are virtually the same. Please refer to the following two examples:
A single-family home in February 2022 (highly competitive sellers’ market with multiple offers): The buyer waives the finance and inspection contingencies, unconditionally releases Earnest Money to the seller, and escalates their offer $150,000 over list price. The home is purchased for $2,000,000 while putting 20% down, which is a loan amount of $1,600,000 with a rate of 3.5%. The monthly mortgage payment is approximately $7,184.
The same single-family home in January 2023: The buyer doesn’t waive contingencies and negotiates the home for $1,600,000 with the seller while putting 20% down, which is a loan amount of $1,280,000 with a rate of 5.625%. The monthly mortgage payment is approximately $7,368.
A condominium in February 2022 (highly competitive sellers’ market with multiple offers): The buyer waives the finance and inspection contingencies, unconditionally releases Earnest Money to Seller, and escalates their offer $50,000 over list price. The condo is purchased for $700,000 while putting 20% down, which is a loan amount of $560,000 with a rate of 3.75%. The monthly mortgage payment is approximately $2,593.
The same condo in January 2023: The buyer doesn’t waive contingencies and negotiates the condo for $550,000 with the seller while putting 20% down, which is a loan amount of $440,000 with a rate of 5.875%. The monthly mortgage is approximately $2,602.
It’s a great time to be a buyer! Home values and interest rates appear to have stabilized and current buyers have the opportunity to avoid being rushed through the process and paying a premium price for the home they desire.