How are economic shifts impacting the housing market?

It’s always a good idea to work with a real estate professional who knows the market, but that professional insight may be more important now than ever. With a topsy-turvy U.S. economy producing headwinds for real estate consumers, the W Report sat down with local Windermere leaders to ask what they’re seeing in today’s market, discussing rising mortgage rates, falling stock indexes, increases in housing inventory and other factors affecting buyers and sellers.

Read on to learn what our experts are saying and to find out if they see any silver linings coming out of the current economic turbulence.

How are rising mortgage rates affecting local buyer behavior?

Fritz Nichols (owner of Windermere’s Seattle-Northwest office):  Buyers are affected in two ways. First, every 1% increase in rates will lower their buying power by 10%, so their purchase parameters are changing. And second, serious buyers who want a piece of this market feel urgency to not wait for the rates to go even higher.

BJ Connolly (co-owner of Windermere Real Estate, Central Inc.):  We’re certainly seeing interest rates affect buyer behavior. Rates have almost doubled, which means buyers may not be able to buy the same house they were looking at three or four months ago. Some may choose to stay put and wait on the market — keep saving their money and keep building their down payment. It’s up to each buyer: what their needs are right now really determines what their market is.

Patrick Chinn (owner of Windermere Real Estate Midtown):  Let’s say you’re looking at a house for $1.25 million and you plan to put 20% down ($250,000) and finance $1 million. The interest rate in February was around 3.875%. The payment with today’s rate is about $1,200 more per month. That difference is deeply felt. So buyers are no longer offering way over asking; they’re getting homes closer to the list price, if not below. Interestingly, their payment may be roughly the same as if they’d paid 20% over asking two months ago.

Laura Smith (co-owner of Windermere Real Estate Co.):  We are at a turning point for a number of reasons. All the uncertainty of the economic conditions in the headlines are moving us into this turning point: inflation, interest rates, war, stock market, etc. Also, human behavior right now as we enter summer could play a factor in the market too. There’s a general catchup in travel and summer activities from the pandemic that will remove some buyers from the market temporarily. This all speeds up the turning point to a healthier market from the heat we were seeing a few months ago.

How are stock market losses impacting buyers?

Patrick:  Buyers don’t want to take out money right now since it’s a tough time to liquidate stocks for a down payment. This is causing some folks to hold off from making a move. It’s another lever that has helped slow the market. We may also see more buyers seeking bridge loans instead of cashing out some of their portfolio.

Laura:  Amazon and other tech company stocks are common here and will impact many people who are invested in those top-tier stocks. A pocket of the market may pause due to a loss in wealth. They may tread more cautiously in their approach — but maybe not stop completely.

Fritz:  Buyers who rely on stock investments for down payments are either going to wait for the them to return or hedge their losses by buying real estate. Well-informed buyers in today’s shifting market are looking at the historical trends in downturns: in times of rising mortgage rates and inflation, typically homes have increased in price.

BJ:  It entirely depends on where they’re at with their portfolio. If they’re selling stock to be able to purchase a home, that could have an impact. A year ago I had a tech buyer cash in some of their stock. They were comfortable that, based on their company’s stock’s performance, the liquidated amount would be replenished within a year. Today’s market might not offer the same assurance.

What do rising mortgage rates mean for sellers?

BJ:  The biggest concern for sellers is that the buyer pool is getting smaller. Buyers are taking a break this summer because they can travel and go see family, and interest rates are telling them this is a good time to do that. We are seeing a lot more price reductions, longer market times, fewer multiple offers. Sellers need to be really careful with their pricing and nail the market price at the get-go. There are still some multiple offers out there, but escalators aren’t as high as before. We’re seeing a lot more homes that are selling right at asking.

Fritz:  The way they sell their homes may need to be shifted. Instead of pricing for multiple offers, sellers should review offers as they come and price accordingly. Flaws in a house are going to stand out more and should be addressed in how the house goes to market. From an inventory standpoint, we are still in a seller’s market. Demand doesn’t seem to be as high, but it still outweighs inventory.

Patrick:  In responding to real-time market shifts, sellers are usually slower to adjust their mindset than buyers. They think, “Just because rates are higher doesn’t mean my house should be valued less.” But with rates almost doubling, it’s a different set of buyers looking at their home today. But in most price points there have not been seismic drops in traffic.

Laura:  If the seller is becoming a buyer, and they’re seeing rates that are double their current mortgage rate, they’re likely to pause and ask “Do I want to do this?” And for potential buyers of that seller’s home, there’s likely going to be an adjustment regarding their monthly payment and thus a more conservative approach in what they can pay. It’s a point of inflection and reflection for both. The likely result for the seller is a deceleration of where prices were headed a few months ago, not a depreciation but a deceleration.

What advice would you offer our clients to make the most of the market despite current economic changes?

BJ:  I think a lot of buyers are reassessing what they can do now as far as their purchasing power, and it’s good to step back a bit. It’s important for them to also know that we will still see rising prices in this area and a little bit of appreciation each month. I tell homeowners that they are the direct beneficiaries of what their neighbors’ homes sold for, and that they can be mindful of that built equity. But at the same time, if they’re planning to sell they need to be sure to price at what the market bears today. We are fortunate to live in an area where we’ve had an astoundingly strong and desirable real estate market these past few years. Let’s be grateful for it. 

Laura:  Taking the economics into account, if you can still afford to enter or stay in the market, then the Chinese proverb continues to apply: “The best time to plant a tree was 20 years ago; the second best time is now.” And even if we’re entering a recession, a housing crisis is unlikely to follow. Four of the past six U.S. recessions have produced net positive home price appreciation.

Fritz:  I would ask questions. Why are you moving? Do you need to move? Look deeper than the headlines and pay attention to the details. There are lots of opportunities on both sides of the equation with the current market. Know what the real experts in your local market are saying.

Are there silver linings to these market impacts?

Patrick:  All these economic factors are combining to bring equilibrium back to the market, which is a good thing. A few months ago buyers were having to make the decision to escalate to 20% over asking and waive every contingency based on a 15-minute showing. That’s not a sustainable buying model. Now buyers should be able to kick the tires more and understand what they’re buying and all the ramifications of their purchase. This is good for both buyer and seller. Buyers may actually be able to let themselves get their hopes up and fall in love with the house they want to buy. They haven’t gotten to do that a lot because there’s been so much competition.

Laura:  Something had to give. The demand-to-supply ratio was way off-balance previously. Now, we should see a healthier marketplace moving toward balance. The silver lining is there for buyers who can stick it out — way better than having to give away the farm to secure a piece of turf, which is the environment we’ve been in for far too long. There will be folks reconsidering selling because they’re used to a 3% interest rate and they can’t see buying now at 6%. But it’s not 2008 with all the short sales and foreclosures. I’ll take this correction over ’08 any day. This market is for those who truly have a need to buy or sell a home — the people who historically have driven a normal real estate market.

Fritz:  The silver lining for the buyers out there right now is the good chance you will not compete with as many buyers and you will have more options. For sellers, the timing could be good for getting into your next home. In the balance of the big picture, the market is still on the seller’s side, so if you need/want to sell and do it right, you should do really well.

BJ:  If I was a serious buyer right now, I’d see much less competition and way more properties to choose from. Being a buyer in the summer can bring some opportunities — lots more inventory and price reductions. Over time today’s buyers will be glad to get the prices that this market offers, because price appreciation is sure to continue. As we face the potential for a U.S. recession, I count my blessings every day that we live in a region with so many jobs, so much growth and so much continuing economic opportunity.

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