2024 State of The Market

Bidding wars, escalator clauses and record prices were the story for the first half of 2022 in our local Puget Sound Housing market. As we wound down last year and kicked off 2023, we finally found some time to breath and the new narrative being written is one of a bit more balanced market. Our recent shift is mainly due to slower buyer demand behind the catalyst of rising mortgage rates. Although inventory levels have increased, we were at such critical lows that a needed lift in supply would be a welcome change for the long-term health of our local market. Whether that manifests or not, remains to be seen. January and February has actually delivered strong buyer demand and inventory levels are holding and even dropping in some areas. The sky is not falling so let’s dive in and take a peek at what’s really going on!


The real estate market is crashing

Based on supply/demand ratios, using the industry benchmark of “month’s supply”, we are still in a market that favors sellers with just over 1 month’s inventory. (Seller’s market < 2, Neutral 2-4 and Buyer’s Market > 4+).  Current supply levels are almost exactly in line with where they were prior to the onset of COVID in 2020. Already suffering from low inventory pre-COVID, the market tightened even more to the point where January of last year brought a record low number of housing units available for sale in King, Pierce, and Snohomish counties. Fast forward to today and even with the headwinds of the last 6-8 months that brought a doubling of interest rates and a rough ride in the stock market, we still barely transitioned from a seller’s market to a balanced market in the second half of 2022. As March arrived, so did signs of a market beginning to tighten again and a return to one that favors sellers.

Inventory is high

Perspective is everything. FACT…Inventory of homes for sale was double what it was in February of last year. However, our listing count in February 2022 stood at only about 750 homes for sale in all of King County. That was the lowest inventory EVER recorded. In reality, the average listing count for February over the last 10 years was about 1700 active listings, which is almost exactly where we sit today. As a point of reference, during the last market correction in 2008, there were over 12,000 listings available in King County alone. Today that number sits at less than 2000….in a county with a population of 2.25 million people. Current inventory, although a significant and welcome increase from last year, is by no means “high”.

Interest rates are high

2022 brought some of the fastest rising mortgage rates in history, as they more than doubled from about 3% in January of last year to over 7%. There is no question this was the largest contributing factor to our recent market shift. Again, perspective here is valuable when you consider the average 30-year mortgage rate over the last 50 years has averaged about 7.75%….and that includes the last 10+ with rates below 5%. The last time we saw rates as high as they are today was in 2007-2008 when the financial crisis & Great Recession hit.  At that time The Fed began Quantitative Easing (QE) to help spur along the economy. Part of this process included purchasing trillions of dollars of mortgage-backed securities (MBS), which created an artificial demand and pushed rates down. As planned, The Fed has significantly reduced their MBS purchases recently, in an effort to tidy up their balance sheet. This has led to fewer buyers in the MBS market, which means rates need to go up to offer a better return to compensate for weaker demand. We all got spoiled over the last 10+ years and, yes, rates are “high” compared to the last decade. But the action that created those lower rates was born from the FED reacting to the worst financial crisis since the Great Depression. Now that they’ve reversed those actions, we find ourselves back in a more “normal” interest rate environment. NOTE: Despite popular belief, mortgage rates don’t mirror The Fed Funds Rate that has garnered all the attention and press as of late as The Fed continues to battle inflation. Mortgage rates are more connected to the 10-Year US Treasury, which is the interest rate the US government pays to borrow money for ten years. Although they often move in the same direction, there is no DIRECT correlation between 30-year fixed mortgages and The Fed Fund Rate.

Home Prices

May of 2022 delivered the highest median sales price EVER for King County, which came it at $998,000. Latest figures from February brought a median sales price of $809,00, representing a 19% correction in less than a year, which is also the quickest on record for our market.

Seems as if that should certainly add some fuel to the market is crashing argument, but perspective here again helps paint some clarity. When we look back at the peak of our market last year, 77% of the homes sold with multiple offers and the average sales price was 15% over asking price!  That was the catalyst behind such a rapid increase in median price from $794,000 to $998,000 in only 5 months. Truly amazing and something we had never seen before in such a short period of time. As the multiple offer narrative changed so did prices. Remove that 15% premium and we find median prices almost exactly in line where they were a year ago.

Thoughts to consider

Our current interest rate environment is most likely the new norm.

Most economists agree that the days of 3% mortgage rates are long gone. As discussed earlier, The Fed, as part of its Quantitative Easing (QE) strategy coming out of the Great Recession, continues to dial back its purchase of Mortgage-Backed Securities significantly. Now that this “artificial demand” over the last 10+ years has contracted, conforming loan rates have returned to pre-QE levels of 6 to 7%.

What about Jumbo Loans?

Jumbo loans are typically used to finance purchases that require a loan amount greater than conforming loans that are government backed. Given our higher prices locally than you would typically see on a national level, jumbo loans are actually quite common among buyers in our area. One misconception that many buyers have is that jumbo rates are higher than conforming loan rates, but you’ll actually find that they are often lower than the government backed/insured loans. So don’t be discouraged, as you may find yourself benefitting from the rates found using a jumbo loan option.

We still have a housing shortage

Despite our recent market slowdown, we are still severely undersupplied. Currently there are only about 3000 homes for sale in all of King, Pierce and Snohomish Counties which combine for a population of roughly 4 million people. A limited supply of buildable land, stringent development regulations and restrictive zoning codes all impact the number of homes being built. When combined with our diverse economic base spanning from technology & aerospace to biotech & healthcare, the demand for housing continues to grow in the Puget Sound. In addition, most builders began to dial back their new housing starts as a reaction to our market shift. Given we barely approached a neutral market and 2023 buyer activity seems to be alive and well, it’s not much of a stretch to see us back in a frothy market with some positive momentum in rates, equity markets combined with our strong employment.

Buyer demand is still strong…on the sidelines

It was not uncommon last year for buyers to be competing with 10 or 15 other offers almost every time they found a home that they wanted to purchase. A significant portion of last year’s buyer pool never succeeded in purchasing their home and are still sitting on the sidelines waiting. Some have been priced out of the market due to interest rates, while others gave up amid the insanity of multiple offers and huge over list price premiums. Others continued to make great offers each time, only to fall short and wait for their next opportunity. In most cases, these buyers’ needs haven’t changed. Whether they renewed their lease, stayed in their current house or moved back home, the demand still exists even though it’s currently waiting on the sidelines.


What to watch for in 2023

Back to multiple offers?

During our last market downturn over a decade ago, King County had roughly 12,000 homes for sale, yet today we only have less than 2000. With our supply level still relatively tight, it wouldn’t take too much of a positive catalyst for us to revisit the market dynamics we just came out of.  If interest rates were to drop substantially and settle in the 5-5% range, we could see more buyers on the sidelines return to the market and make quick work of the limited inventory we do have, creating a similar dynamic to the last couple years.


The interest rate trap for sellers

Many who purchased in the last 10 years locked up their mortgage at 5% or less and probably under 4% for those who purchased in the last 5 years. This could exacerbate our supply issues in the coming years if rates stay above 5%. Most homeowners will be reluctant to sell their current home with a low fixed mortgage rate and purchase their new home at a higher rate.

Working from home…here to stay?

COVID changed the landscape on how and where many of us work. This led to a demand shift from the cities to the suburbs and even further for some. Many also made their housing decisions based upon their newfound freedom and we saw more suburban and rural markets explode with buyer demand. What if work from home trends reverse…how could that effect our market? We are already seeing many companies. encouraging their employees to return to the office. Low unemployment and lots of open positions over the last few years has clearly shifted the leverage from employer to employee. As with everything, the labor market will shift as well. Some companies have already thinned their employee count to help absorb rising wages and inflationary costs. Once the tight unemployment begins to loosen and companies gain more leverage, we may see the work from home trend loose some steam. If that happens, rural and suburban markets will most likely see their COVID induced housing markets cool off a bit as people revisit their desire to commute again.

Current opportunities for buyers

Less competition

If you took a step back or out because the market was too crazy, this is a now a chance for you to purchase at a much lower price point that most of 2022 offered. Higher rates have obviously led to higher mortgage payments, but the current flip side of that is lower prices that should help partially offset the impact of a higher mortgage rate. And if rates improve, you can refinance and help lower your payment as an added bonus.

Seller Concessions

After years of calling the shots, more sellers are now willing to provide concessions to get their house sold. These could be through price concessions, closing cost credits or even inspection repairs that they weren’t willing to do when they had multiple buyers lined up.

Another popular strategy buyers use is seller credits to “buy down” their interest rate to something much lower. If current rates have you waiting on the sidelines, a rate buy-down may be the perfect solution to allow you to jump back into the market, which is now a little easier to navigate for buyers than it has been in recent years.

Buy now/refinance later

If rates were to go up, will you look back and wish you would have purchased in today’s market?

If rates were to fall, would you prefer to just refinance the home you bought today or would you rather shop for your new home in a more competitive buyer environment with low inventory once everyone else decides to get back into the market?

It’s human nature to try and time a market to derive the best outcome. But real estate also serves as more than just an investment and the decision to purchase is often driven more by needs or wants, rather than market dynamics. Interest rates are temporary, so don’t assume you can’t meet that need or deliver on that want just because the interest rate environment has temporarily changed.

Cash Buyers

If you’re lucky enough to have the resources to make your purchase in cash, this environment is ripe for you. Unlike most, you aren’t being impacted by higher rates/mortgage payment, yet you get to take advantage of those seller concessions.

Current opportunities for sellers

Be early to the game

Most sellers target sometime in the late spring to list their homes for sale, but I would encourage you to do so sooner if you plan to sell in 2023. As a seller, you want less competition when you come to market. Fewer choices for buyers usually means better prices for sellers so get ahead of that spring wave of listings and take advantage!


Condos & Townhomes

The recent rise in interest rates combined with years of market appreciation have pushed many out of the market for single family homes. That can often lead to an uptick in demand for condos and townhomes as buyers adjust their price points yet still look to fill their desire for ownership. Look for this to happen in 2023 as many buyers re-calibrate how far their mortgage payment can stretch and consider townhomes or condos as an alternative to a single-family home.

Become a move up buyer

If you were contemplating expanding your footprint to a bigger or fancier house over the last few years, don’t give up on that thought.  Most buyers make their move up when the market is humming along nicely. They feel like they can get a nice little premium for their home and roll that into their next purchase. In reality, moving up in a robust market might make less sense than doing it now. Assume your home was worth 500K last year and you were looking to buy up to a $1,000,000 home. Using the 20% correction from our highs, your home is now worth 400K. Ouch, you’ve lost 100K! But that million-dollar home you were going to buy is now worth $800,000. You “lost” 100K on your current home but gained $200,000 in price improvement on the home you were going to buy for a net positive gain of $100,000. Making the move up in a down market actually may make sense for some.

Final Thoughts

The Puget Sound area real estate market is still very healthy from the perspective of supply and demand economics. Our industry-diverse economic base and high wages have and will continue to drive demand in the years to come. Combine that with an ever-shrinking supply of buildable land and it’s not hard to jump to the conclusion that we will continue to see a strong built-in demand for years to come. With market cycles come opportunities…our last cycle was the worst on record since the Great Depression and we lost about 25-30% in price, median price in King County fell to $310,000 just 11 years ago. Today, the median price in King County is nearly $810,000.

Hopefully the info shared here will help offer clarity in an otherwise confusing cascade of water cooler conversations, press clippings and uninformed opinions. Whether you need a trusted advisor, someone to bounce ideas off or just to get yourself educated on our current market, you’ve found the spot and I am happy to provide the time.

Here’s to a stellar 2023!

©Jess Beyers 2023