DRAFT: Q4 2022 Western Washington Economic & Real Estate Update

Q4 2022 Gardner Report: Real Estate & Economic Update for Western Washington

 

The following analysis of select counties of the Western Washington real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere Mercer Island agent.

 

Regional Economic Overview

Although the job market in Western Washington continues to grow, the pace has started to slow. The region added over 91,000 new jobs during the past year, but the 12-month growth rate is now below 100,000, a level we have not seen since the start of the post-COVID job recovery. That said, all but three counties have recovered completely from their pandemic job losses and total regional employment is up more than 52,000 jobs. The regional unemployment rate in November was 3.8%, which was marginally above the 3.7% level of a year ago. Many business owners across the country are pondering whether we are likely to enter a recession this year. As a result, it’s very possible that they will start to slow their expansion in anticipation of an economic contraction.

Western Washington Home Sales

In the final quarter of 2022, 12,711 homes sold, representing a drop of 42% from the same period in 2021. Sales were 34.7% lower than in the third quarter of 2022.

Listing activity rose in every market year over year but fell more than 26% compared to the third quarter, which is expected given the time of year.

Home sales fell across the board relative to the fourth quarter of 2021 and the third quarter of 2022.

Pending sales (demand) outpaced listings (supply) by a factor of 1:2. This was down from 1:6 in the third quarter. That ratio has been trending lower for the past year, which suggests that buyers are being more cautious and may be waiting for mortgage rates to drop.

A bar graph showing the annual change in home sales for various counties in Western Washington from Q4 2021 to Q4 2022. All counties have a negative percentage year-over-year change. Here are the totals: Jefferson at -19.9%, Skagit at -27.7%, Mason -30.7%, Lewis -30.9%, Clallam -34.3%, Whatcom -36.3%, Kitsap -38.5%, Snohomish -40.3%, Island -42%, Grays Harbor -42.3%, King -43.1%, Thurston -45.8%, San Juan -46.8%, Pierce -46.9%.

Western Washington Home Prices

Sale prices fell an average of 2% compared to the same period the year prior and were 6.1% lower than in the third quarter of 2022. The average sale price was $702,653.

The median listing price in the fourth quarter of 2022 was 5% lower than in the third quarter. Only Skagit County experienced higher asking prices. Clearly, sellers are starting to be more realistic about the shift in the market.

Even though the region saw aggregate prices fall, prices rose in six counties year over year.

Much will be said about the drop in prices, but I am not overly concerned. Like most of the country, the Western Washington market went through a period of artificially low borrowing costs, which caused home values to soar. But now prices are trending back to more normalized levels, which I believe is a good thing.

A map showing the real estate home prices percentage changes for various counties in Western Washington. Different colors correspond to different tiers of percentage change. Grays Harbor and Whatcom Counties have a percentage change in the -6.5% to -3.6%+ range, Clallam, Jefferson, King, and Skagit counties are in the -3.5% to -0.6% change range, Snohomish and Pierce are in the -0.5% to 2.4% change range, Mason, Thurston, Island, and Lewis counties are in the 2.5% to 5.4% change range, and San Juan County is in the 5.5%+ change range.

A bar graph showing the annual change in home sale prices for various counties in Western Washington from Q4 2021 to Q4 2022. San Juan County tops the list at 6.9%, followed by Lewis at 4.8%, Thurston at 3.8%, Island at 3.7%, Mason at 3.5%, Snohomish at 0.8%, Pierce at -0.2%, Clallam at -1%, Skagit at -2.1%, Jefferson at -2.5%, King at -3.1%, Whatcom at -4.1%, Kitsap at -5.3%, and finally Grays Harbor at -6.5%.

Mortgage Rates

Rates rose dramatically in 2022, but I believe that they have now peaked. Mortgage rates are primarily based on the prices and yields of bonds, and while bonds take cues from several places, they are always impacted by inflation and the economy at large. If inflation continues to fall, as I expect it will, rates will continue to drop.

My current forecast is that mortgage rates will trend lower as we move through the year. While this may be good news for home buyers, rates will still be higher than they have become accustomed to. Even as the cost of borrowing falls, home prices in expensive markets such as Western Washington will probably fall a bit more to compensate for rates that will likely hold above 6% until early summer.

A bar graph showing the mortgage rates from Q4 2020 to the present, as well as Matthew Gardner's forecasted mortgage rates through Q4 2023. After the 6.79% figure in Q4 2022, he forecasts mortgage rates dipping to 6.27% in Q1 2023, 6.09% in Q2 2023, 5.76% in Q3 2023, and 5.42% in Q4 2023.

Western Washington Days on Market

It took an average of 41 days for homes to sell in the fourth quarter of 2022. This was 17 more days than in the same quarter of 2021, and 16 days more than in the third quarter of 2022.

King County was again the tightest market in Western Washington, with homes taking an average of 31 days to find a buyer.

All counties contained in this report saw the average time on market rise from the same period a year ago.

Year over year, the greatest increase in market time was Snohomish County, where it took an average of 23 more days to find a buyer. Compared to the third quarter of 2022, San Juan County saw average market time rise the most (from 34 to 74 days).

A bar graph showing the average days on market for homes in various counties in Western Washington for Q4 2022. King County has the lowest DOM at 31, followed by Kitsap at 45, Island and Snohomish at 35, Whatcom, Thurston, and Skagit at 36, Pierce at 37, Clallam at 38, Jefferson at 40, Mason at 43, Grays Harbor at 46, Lewis at 49, and San Juan at 74.

Conclusions

This speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors.

The regional economy is still growing, but it is showing signs of slowing. Although this is not an immediate concern, if employees start to worry about job security, they may decide to wait before making the decision to buy or sell a home. As we move through the spring I believe the market will be fairly soft, but I would caution buyers who think conditions are completely shifting in their direction. Due to the large number of homeowners who have a mortgage at 3% or lower, I simply don’t believe the market will become oversupplied with inventory, which will keep home values from dropping too significantly.

A speedometer graph indicating a balanced market, barely leaning toward a seller's market in Western Washington in Q4 2022.

Ultimately, however, the market will benefit buyers more than sellers, at least for the time being. As such, I have moved the needle as close to the balance line as we have seen in a very long time.

About Matthew Gardner

Matthew Gardner - Chief Economist for Windermere Real Estate

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

 


This article originally appeared on the Windermere blog January 26th, 2023. Written by: Matthew Gardner.

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