The Housing Market Faces Its Biggest Test Yet

Posted by Cary W Porter on Wednesday, July 6th, 2022 at 10:35am

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Compared to a year ago, Northwest MLS (NWMLS) brokers reported:

  •          Significant jump in inventory,
  •          double-digit drops in both pending and closed sales
  •          And the smallest year-over-year (YOY) increase in prices since June 2020.

What the changes mean in general terms are:

  •          More houses on the market
  •          Longer market times
  •          Stabilizing home prices
  •          Fewer showings and open house visitors
  •          Fewer offers at one time
  •          And more price adjustments

KIRKLAND, Washington (July 6, 2022) – Housing statistics from Northwest Multiple Listing Service for June show signs of a shifting market, creating opportunities for some buyers. Compared to a year ago, Northwest MLS (NWMLS) brokers reported a healthy jump in inventory, double-digit drops in both pending and closed sales, and the smallest year-over-year (YOY) increase in prices since June 2020.

“What the changes mean in general terms, are more houses on the market, longer market times, stabilizing home prices, fewer showings and open house visitors, fewer offers at one time, and more price adjustments,” said Frank Wilson, Kitsap regional manager at John L. Scott Real Estate.

“It’s nice to see a more balanced market for buyers,” remarked Dean Rebhuhn, owner at Village Homes and Properties in Woodinville, pointing to the increase in new listings, more price reductions, and still favorable mortgage rates as factors that are creating opportunities for buyers. “The return of financing and inspection contingencies are now the norm,” he reported.

Northwest MLS brokers added 14,223 new listings of single-family homes and condos to inventory during June, up from both May, when they added 13,075 homes system-wide, and a year ago, when they added 13,111 properties to the database. Last month’s total was the highest volume of new listings since May 2019 when brokers tallied 14,689 new listings.

At the end of June there were 13,405 active listings of single-family homes and condominiums in the Northwest MLS database, which includes 26 of the state’s 39 counties. That’s more than double the inventory of a year ago (6,358 listings), and the best selection since October 2019 when buyers could choose from 14,379 listings.

Both pending sales (mutually accepted offers) and closed sales declined from a year ago. MLS members reported 8,937 pending sales during June, down 27.5% from the year-ago total of 12,328, and down 3.8% from May.

Closed sales also fell from a year earlier (down about 17.2%), but last month’s total of 9,047 completed transactions nearly matched May’s volume of 9,096.

“While there was a decrease in closed and pending sales in June, there is no reason to panic as we continue to move toward a more balanced market,” said John Deely, executive vice president of operations at Coldwell Banker Bain. “Having the standing active inventory rise above the closed and pending categories in June means we are finally building inventory, which is healthy for the marketplace. It slows down the steep price appreciation we have been seeing and provides a bit more time for buyers to look at more properties.”

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Secured mortgages fell 18% from the fourth quarter of 2021 and were down 32% from the same time last year — the biggest year-over-year drop since 2014. This marked the fourth quarterly decrease, which the data management company said was the result of “double-digit downturns in purchase and refinance activity, even as home-equity lending rose.”

Along with the 32% decline in residential mortgages, the report found the number of new loans fell for the fourth straight quarter, meanwhile refinance lending fell another 22% and purchase mortgages were down 18%. 

The latest MLS report shows area-wide prices rose about 10.4%, from a median price of $589,000 to $650,000. On a percentage basis, that is the smallest year-over-year (YOY) gain since June 2020 when prices rose around 5.7%.

Seven counties had YOY price hikes of 19% or more for last month’s sales of single-family homes and condos: Douglas, Ferry, Jefferson, Kitsap, Lewis, Mason, and Whatcom.

San Juan County had the highest median price last month, at $940,000, for it 25 sales of single-family homes and condos.

King County had the second highest sales price last month, coming in at $851,000. That represents a 9.1% increase from a year ago, but a slight decline (3.4%) from May’s figure of $880,000. Median prices topped $1 million for both Vashon and the Eastside map areas, as well as for areas encompassing North Seattle and Lake Forest Park.

Prices of single-family homes (excluding condos) system-wide rose about 10.5% from a year ago. Condo prices increased by a similar amount (10.2%).

Commenting on prices, Deely acknowledged they’re “leveling out,” but commented, “We are still not a buyer’s market by far.” He believes some of the slowdown in pending and closed sales is simply part of a seasonal cycle this region experiences in June and July once school is out and people begin to travel. “In fact, travel is hitting peak numbers this summer as the world continues to open,” he stated.

Wilson also commented on the changing market, noting the uptick in months of supply. It reached nearly six weeks (1.48 months) by the end of June. “While we have seen an increase in market time to almost a month and a half, there is a long way to go for the market to reach a neutral level which is typically found between four and six months of inventory,” he stated.

The housing market is entering the ‘most significant contraction in activity since 2006,’ says Freddie Mac economist.

Commenting on the Kitsap market, where there is about 1.3 months of supply, Wilson said it is “nowhere close to flipping to a buyer’s market,” adding, “Often change is good for one group but bad for another. In this case the change is good for buyers but does not really hurt sellers. Sellers who correctly price their home in today’s market are still able to get top of market prices. Buyers have more choices and may see a little bit of flexibility on price and terms from the seller.”

Northwest MLS director Meredith Hansen echoed those remarks. “With higher interest rates and more inventory, we are seeing sellers becoming more flexible in what terms they will accept,” reported Hansen, the founder/operating principal at Keller Williams Greater Seattle. “It is an excellent time for buyers who were discouraged in the past frenzied market to step back in and find a home,” she suggested, adding, “Buyers are not waiving financing and inspections like they were prior to this market shift.”

Lennox Scott, chairman and CEO of John L. Scott Real Estate, also commented on the “intensity adjustment” in the Puget Sound market, while noting sales activity remains strong. “Everything is coming together for buyers in the market, with increased selection of available listings and fewer multiple-offer situations to navigate. A strong contingent of buyers is taking note of new listings and poised to put an offer on the right home, in the right condition, at the right price.”

Expecting “much will be made of the numbers that showed a significant increase in active listings” during June, Windermere chief economist Matthew Gardner said it’s important to keep things in perspective.

“The pandemic heavily influenced the housing market with inventory levels essentially drying up in 2020/2021,” Gardner stated. In analyzing June’s data, he noted single family home listings in the tri[1]county area of King, Pierce, and Snohomish counties rose more than 144% compared to a year ago. “This still represents the fourth lowest number of listings in any June for this region since 1999.”

 Gardner believes the market is trending back to some sense of normalcy. “The increase in listings has started to slow the rabid pace of price gains that we have experienced. This is a good thing, not a cause for concern,” he emphasized.

Frank Leach, broker/owner at RE/MAX Platinum Services in Silverdale, concurred with some of Gardner’s observations. “Kitsap County continues to see a robust market. Inventory is up 110% from a year ago,” he exclaimed, pointing to the MLS report showing active listings soared from 288 to 606 listings. He expects the increasing supply in Kitsap County will help provide a more balanced market. Leach also noted both pending and closed sales slipped year over year, but prices surged more than 19%.

How high will mortgage rates go in 2022?

By the end of 2022, experts anticipate that the 30-year fixed mortgage rate could land between 5.8% and 7.0 percent. For the 15-year fixed mortgage rate, their predictions fall between 3.9% and 6.0 percent.

“Kitsap is in a building boom and builders are racing to meet demand,” according to Leach. Open houses have resumed, but traffic “was off” at the end of June, which he suggested may be due to inclement weather and graduations. Leach also noted rents are rising across the county, pushing first-time buyers into the market. “Increasing interest rates are of some concern and buy-downs on interest rates are being used widely,” he reported.

“Both rising mortgage rates and home prices hurt affordability for many buyers,” stated Nadia Evangelou, senior economist and director of forecast at the National Association of Realtors, in an interview with a reporter for MarketWatch Picks. With affordability concerns and persistent inventory shortages, she said more people are renting, but rents are rising sharply.

“For institutional buyers, rising rents translate to larger profits,” Evangelou explained, adding, “However, a larger market presence of institutional buyers increases market competition for first-time home buyers. Research has shown that institutional investors may be taking a significant portion of homes that would otherwise be sold to first-time and lower-income buyers.”

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The Real Estate Market “Shift” Is Here

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