The Western Washington housing market is “more favorable to buyers than it has been in a decade,” according to a statement released earlier this month by the Northwest Multiple Listing Service (Northwest MLS).
“Buyers are finally getting some relief,” said Mike Larson, a member of the Northwest MLS board of directors and the managing broker at Compass in Tacoma. “Getting back to a balanced, more normal market is almost a welcome change.”
However, Larson added some factors continue to present challenges for homebuyers, including inflation and rising interest rates.
According to Northwest MLS, the median home price statewide rose 5.1% from September 2021 to September 2022, increasing from $570,000 to $599,000. During that time, the number of active listings in Washington almost doubled.
In Lewis County, the number of active listings stood at 348, down 5.7% from the 369 listed homes in August but 64.93% higher than a year before in September 2021. That year-to-year increase in active listings surpassed Pacific County, which saw a 45.95% increase in active listings from September 2021 to September 2022, but trailed annual increases in Grays Harbor (73.08%), Thurston (82.1%) and Cowlitz (93.94%) counties. The rise in housing inventory contributed to Lewis County being one of only six counties in the state to see a decline in home prices compared to a year ago, along with Clallam, Columbia, Okanogan, Pacific and San Juan counties.
While home prices are up statewide from a year ago, the median home price in Washington went down 0.17% from August to September, falling from $600,000 to $599,000.
From August to September, home prices declined by 5.14% in Lewis County, falling from $399,000 to $378,475, compared to a monthly increase in home prices in Grays Harbor (5.34%), Cowlitz (6.37%) and Pacific (18.47%) counties. Thurston County saw its home prices fall by 2.04% from August to September.
Eren Millam, a Lewis County realtor, said home prices in Lewis County remain relatively high despite recent decline.
“We’re still above where we started the year in terms of price,”’ Millam said. “We pretty much just lost all the gains.”
Based on past trends, Millam told The Chronicle he expects inventory to drop this winter. Compared to September’s 142 new Lewis County listings, he expects winter numbers to be around 100.
Millam said rising interest rates have a significant effect on potential homebuyers. He pointed to the recent increase in closed home sales, which he said are typically down this time of year.
“I think buyers are concerned, rightfully so, about interest rates,” Millam said. “We typically lose 30 to 35% of buyers during the winter, but (potential buyers) left early because of interest rates.”
According to Millam, the decline in prospective homebuyers means houses stay listed longer before a sale. The number of days a home is on the market is a lagging indicator of market activity, he said, as many homes have been taken off the market when prices drop.
“A lot of homes that have been on the market were not ready for the price drops,” Millam said.
Millam said homes in Lewis County have been selling about 5% below asking price on average as sellers are forced to accept lower offers in the face of reduced competition. The lack of competition stemming from a reduced number of potential homebuyers has driven the average number of showings per listing down from 6.2 at the beginning of the year to about 2.8 in September.
The fall in the average number of showings indicates a buyer pool that has shrunk by about 50%, slightly more than normal for this time of year, according to Millam.
As the pool of potential homebuyers has shrunk, confidence among homebuilders has declined. Millam said the U.S. Housing Market Index, a monthly national survey of homebuilders, has declined by over 50% since the beginning of the year, falling from 80 in January to 38 in October.
“That signals builders are going to be building less homes so now the inventory problems will continue,” Milam said.
In his view, the decline in new home construction will make it harder for buyers to find a home as people jump on homes as soon as they come on the market.
Just as interest rates influence buyers, Milliam said they can serve as a predictor for change in the market.
“If they kept interest rates stable, the market would go up because people want stability,” Millam said.
According to Millam, rising interest rates make it more difficult for homebuyers to afford homes, as more of their money has to go to interest payments.
“Every percent the interest rate goes up a buyer loses 11% of their money on average,” Millam said.
Millam gave an example of a homebuyer who was previously able to purchase a $500,000 home. Under a one percentage point increase in interest rates, for the same monthly cost that same buyer would now only be able to afford a $445,000 home.
But even as rising interest rates can make it harder to afford a home, the decrease in competition gives buyers bargaining power.
“What buyers need to be looking for right now is homes where they can afford the payment and get sellers to pay down their interest rate,” Millam said.
According to Millam, getting a seller to pay down a homebuyer’s interest rate can save the buyer thousands of dollars per year.
“Sellers need to drop their price and buyers should not be afraid of the higher interest rate because sellers are open to paying down the interest rate,” Millam said.
