The Seattle real estate market has always been dynamic, but the past couple of years have brought especially dramatic shifts. Rising interest rates have slowed some of the frenzied activity we saw during the pandemic-era boom, creating a new landscape for buyers, sellers, and investors alike.
The Role of Interest Rates in Today’s Market
Higher interest rates have undoubtedly impacted affordability, keeping some buyers on the sidelines. Yet, this has also led to less competition and more opportunities for those still in the market. Homes are no longer receiving dozens of offers within days, and buyers now have the breathing room to carefully evaluate their options, negotiate terms, and secure properties that would have been out of reach just a short time ago.
Why New Construction Is a Smart Play Right Now
New construction is particularly appealing in this environment. Builders in the Seattle area are motivated to sell, and many are offering incentives such as rate buydowns, closing cost credits, or upgrade packages that can offset today’s borrowing costs. For owner-occupants, this means the chance to purchase (and in some circumstances – customize) a brand-new home while taking advantage of builder perks. For investors, new construction offers modern, low-maintenance properties in high-demand neighborhoods—making them easier to rent and hold for long-term appreciation.
A Window of Opportunity
Markets move in cycles, and today’s environment represents a potential window of opportunity. While rates may seem high compared to recent history, they are still below long-term averages, and experts predict they could ease in the future. Buying now allows you to lock in a property at today’s prices—before demand surges again when rates decline.
Let’s Talk About Your Options
Whether you’re considering a personal move or exploring investment opportunities, Seattle’s current market offers unique advantages for those who act strategically. If you’d like to discuss what’s happening right now, evaluate specific neighborhoods, or explore new construction opportunities, I’d be happy to walk you through your options.
📩 Reach out to me anytime to start the conversation—I’m here to help you navigate Seattle’s real estate market with confidence.
Why Now Is a Smart Time to Invest in Seattle Real Estate 🏘
And Why You Need the Right Agent in Your Corner
Seattle’s real estate market is shifting—and for savvy investors, that spells opportunity.
While headlines may focus on elevated rates or price fluctuations, serious investors know these transitional markets are when smart money moves. With inventory growing, seller concessions increasing, and rental supply tightening, the current environment offers rare leverage for those ready to buy.
But timing the market is only part of the equation—who you work with matters just as much as when you buy.
Why This Market Works for Investors
📉 Prices Are Stabilizing, Not Crashing
Median home prices in Seattle softened to ~$839K as of August 2025. Sellers are more negotiable, with increased room to buy below market—or at least with favorable terms.
🏗 Inventory Is Up, Competition Is Down
With listings up over 37% year-over-year, the market has shifted from frenzy to strategy. That means better selection and a chance to structure deals that protect your return.
💰 Motivated Sellers Are Offering Incentives
Nearly 70% of sellers in early 2025 provided buyer concessions—closing cost credits, inspection repairs, or permanent rate buydowns—allowing you to improve your cash flow or reduce out-of-pocket costs.
📈 Rent Growth Ahead
Seattle’s new apartment construction has dropped dramatically—permits are down 50%, and completions are slowing. That tightening pipeline, paired with a growing renter pool, makes rental properties increasingly valuable, especially in supply-constrained neighborhoods.
How I Help You Capitalize on This Market
As an investor-friendly Realtor with deep expertise in new construction, I bring more than just market knowledge—I bring strategic insight, strong builder relationships, and an investor’s mindset to every deal.
Here’s how I can help:
✅ I Understand the Numbers
I don’t just show homes—I analyze deals. Whether you’re looking at cash flow, long-term appreciation, rent comps, or exit strategy, I help you make decisions based on data, not emotion.
✅ I Know the Builders—and the Incentives
Having worked closely with builders across the greater Seattle area, I know which ones are offering rate buydowns, closing cost credits, early-phase pricing, and inventory discounts. This can make a major difference in your return.
✅ I Source Off-Market & Early-Release Opportunities
Through my builder and developer network, I can connect you with new construction homes and townhomes before they hit the MLS—giving you first-mover advantage in prime locations.
✅ I Advocate Like an Investor—Because I Am One
Your goals are my goals. I approach each transaction with a long-term perspective, ensuring your investment aligns with the market cycle and your personal strategy.
Seattle’s Current Market = Strategic Entry Point
Even with rates in the 6.6%–6.9% range, many investors are buying now with a refinance strategy in mind. And with sellers more flexible and competition lower, you can negotiate better terms, protect your downside, and position for strong long-term growth.
If you’re looking for:
New construction homes with rental upside
Turnkey or light value-add properties
Homes in up-and-coming urban infill areas
Multi-door investments or ADU/ DADU-eligible lots
Creative financing or concession-rich deals
…I can help you identify, evaluate, and negotiate with confidence.
Final Thought
Seattle’s market is in a moment of recalibration—not retreat. And for investors, that’s where the best opportunities are born.
Let’s talk if you’re ready to explore what’s out there. Whether you’re a first-time investor, scaling your portfolio, or 1031 exchanging into something more hands-off, I’ll help you navigate the current market and make strategic moves now that will pay off for years to come.
Whether you are ready to invest or just thinking about it, feel free to reach out! Call or text 206-659-8116 or email me at marnie@windermere.com
In today’s market, buying a home might seem like a bold move—but when it comes to new construction, it could be one of the smartest financial decisions you make. Despite high interest rates and lingering affordability concerns, a perfect storm of builder incentives and softening rents in certain areas has created a rare window of opportunity for buyers. In some cases, you can actually buy for less than it costs to rent.
Here’s why now is the right time to consider new construction:
Monthly Mortgage Payments Are Beating Rent
In several neighborhoods, the cost of renting a comparable home or apartment has climbed while builders have adjusted pricing and added concessions. With the right financing and incentives, you could own a brand-new home for less than you’re currently paying in rent—and build equity while doing it.
For example, a buyer using a builder-paid interest rate buy-down could see their monthly payment drop significantly, tipping the scales in favor of ownership, especially in suburban or growing metro areas where rents have remained high.
Builder Incentives Are Reducing Real Costs
To attract buyers in a slower market, many builders are offering substantial incentives that directly reduce your monthly costs. These can include:
Permanent rate buy-downs (e.g., 30-year fixed rates as low as 4.99% in some cases)
Closing cost credits
These incentives help offset higher interest rates, making new homes more affordable than resale options—and, surprisingly, even cheaper than many rentals.
New Construction = Long-Term Savings
Beyond just the purchase price, new construction homes come with long-term cost advantages:
Lower maintenance: Everything is brand new, from the roof to the HVAC.
Builder warranties: Most new construction warranties will include the structure and major systems and even some cosmetic items.
Energy efficiency: New homes are built to modern energy codes, often including double-pane windows, high-efficiency appliances, and smart home features that reduce monthly utility bills.
Inventory Is Available—But It Won’t Last Forever
After a multi-year housing shortage, we’re finally seeing more inventory in the new construction market. Builders are motivated to sell, but as the market stabilizes and rates eventually come down, demand is expected to rebound—and prices and competition will likely follow. The best deals are available now, while supply is strong and incentives are generous.
Bottom Line
If you’ve been sitting on the sidelines, now is the time to take a serious look at new construction. Between builder-paid rate buy-downs, closing cost assistance, and today’s rent-versus-buy math, buying a new home could actually cost you less each month than continuing to rent. That’s a rare opportunity in any market—and one worth exploring before it passes.
Want to find out if buying new construction is cheaper than renting in your area? Let’s connect and run the numbers together. You can reach me at marnie@windermere.com or 206-659-8116
As of January 2025, Seattle’s housing market continues to exhibit dynamic trends, particularly in the realm of new construction. The city remains a focal point for both buyers and investors, driven by its robust economy and desirable living conditions.
Current Market Overview
According to Redfin, the median listing home price in Seattle stands at approximately $885,000, with properties typically spending around 75 days on the market.
This reflects a balanced market, offering opportunities for both buyers and sellers.
New Construction Trends
In 2023, Seattle achieved a significant milestone by completing 12,853 new homes, marking a 21% increase over the previous year and setting a new record for housing production.
Despite this surge, the city faces challenges in maintaining this momentum. Recent data indicates a decline in construction permits, suggesting potential slowdowns in future housing availability.
As of late 2024, builder sentiment in Seattle was measured at 44 out of 100, a notable decrease from the peak of 91 in March 2022, though slightly improved from the previous year. Additionally, the construction sector reported 129,300 jobs in November 2024, a reduction of 4,500 positions compared to the same month in 2023.
Several elements contribute to the current state of new construction in Seattle:
Geographic Constraints: Seattle’s unique topography, bordered by water and mountains, limits available land for development, inherently restricting housing supply.
Zoning Regulations: Existing zoning laws further constrain the development of new housing projects, particularly in central urban areas.
Economic Considerations: While construction costs have seen a slight decrease of 1.8% year-over-year, they remain elevated, impacting the feasibility of new projects.
The combination of high demand and limited supply continues to characterize Seattle’s housing market. The recent decline in construction permits may signal a future slowdown in housing availability, potentially leading to increased competition among buyers and sustained upward pressure on prices.
For stakeholders in the real estate sector, staying informed about these trends is crucial. Engaging with local policymakers, advocating for thoughtful zoning reforms, and exploring innovative construction methods could play pivotal roles in addressing the housing challenges facing Seattle in the coming years.
If you are interested in either buying or selling in Seattle, or just want to learn more about the housing market, feel free to reach out to me anytime. You can reach me at marnie@windermere.com or 206-659-8116.
If you’re holding out hope that the housing market is going to crash and bring home prices back down, here’s a look at what the data shows. And spoiler alert: that’s not in the cards. Instead, experts say home prices are going to keep going up.
Today’s market is very different than it was before the housing crash in 2008. Here’s why.
It’s Harder To Get a Loan Now – and That’s Actually a Good Thing
It was much easier to get a home loan during the lead-up to the 2008 housing crisis than it is today. Back then, banks had different lending standards, making it easy for just about anyone to qualify for a home loan or refinance an existing one.
Things are different today. Homebuyers face increasingly higher standards from mortgage companies. The graph below uses data from the Mortgage Bankers Association (MBA) to show this difference. The lower the number, the harder it is to get a mortgage. The higher the number, the easier it is:
The peak in the graph shows that, back then, lending standards weren’t as strict as they are now. That means lending institutions took on much greater risk in both the person and the mortgage products offered around the crash. That led to mass defaults and a flood of foreclosures coming onto the market.
There Are Far Fewer Homes for Sale Today, so Prices Won’t Crash
Because there were too many homes for sale during the housing crisis (many of which were short sales and foreclosures), that caused home prices to fall dramatically. But today, there’s an inventory shortage – not a surplus.
The graph below uses data from the National Association of Realtors (NAR) and the Federal Reserve to show how the months’ supply of homes available now (shown in blue) compares to the crash (shown in red):
Today, unsold inventory sits at just a 3.0-months’ supply. That’s compared to the peak of 10.4 month’s supply back in 2008. That means there’s nowhere near enough inventory on the market for home prices to come crashing down like they did back then.
People Are Not Using Their Homes as ATMs Like They Did in the Early 2000s
Back in the lead up to the housing crash, many homeowners were borrowing against the equity in their homes to finance new cars, boats, and vacations. So, when prices started to fall, as inventory rose too high, many of those homeowners found themselves underwater.
But today, homeowners are a lot more cautious. Even though prices have skyrocketed in the past few years, homeowners aren’t tapping into their equity the way they did back then.
Black Knightreports that tappable equity (the amount of equity available for homeowners to access before hitting a maximum 80% loan-to-value ratio, or LTV) has actually reached an all-time high:
That means, as a whole, homeowners have more equity available than ever before. And that’s great. Homeowners are in a much stronger position today than in the early 2000s. That same report from Black Knight goes on to explain:
“Only 1.1% of mortgage holders (582K) ended the year underwater, down from 1.5% (807K) at this time last year.”
And since homeowners are on more solid footing today, they’ll have options to avoid foreclosure. That limits the number of distressed properties coming onto the market. And without a flood of inventory, prices won’t come tumbling down.
Bottom Line
While you may be hoping for something that brings prices down, that’s not what the data tells us is going to happen. The most current research clearly shows that today’s market is nothing like it was last time.
Why There Won’t Be a Recession That Tanks the Housing Market
There’s been a lot of recession talk over the past couple of years. And that may leave you worried we’re headed for a repeat of what we saw back in 2008. Here’s a look at the latest expert projections to show you why that isn’t going to happen.
According to Jacob Channel, Senior Economist at LendingTree, the economy’s pretty strong:
“At least right now, the fundamentals of the economy, despite some hiccups, are doing pretty good. While things are far from perfect, the economy is probably doing better than people want to give it credit for.”
That might be why a recent survey from the Wall Street Journal shows only 39% of economists think there’ll be a recession in the next year. That’s way down from 61% projecting a recession just one year ago (see graph below):
Most experts believe there won’t be a recession in the next 12 months. One reason why is the current unemployment rate. Let’s compare where we are now with historical data from Macrotrends, the Bureau of Labor Statistics (BLS), and Trading Economics. When we do, it’s clear the unemployment rate today is still very low (see graph below):
The orange bar shows the average unemployment rate since 1948 is about 5.7%. The red bar shows that right after the financial crisis in 2008, when the housing market crashed, the unemployment rate was up to 8.3%. Both of those numbers are much larger than the unemployment rate this January (shown in blue).
But will the unemployment rate go up? To answer that, look at the graph below. It uses data from that same Wall Street Journalsurvey to show what the experts are projecting for unemployment over the next three years compared to the long-term average (see graph below):
As you can see, economists don’t expect the unemployment rate to even come close to the long-term average over the next three years – much less the 8.3% we saw when the market last crashed.
Still, if these projections are correct, there will be people who lose their jobs next year. Anytime someone’s out of work, that’s a tough situation, not just for the individual, but also for their friends and loved ones. But the big question is: will enough people lose their jobs to create a flood of foreclosures that could crash the housing market?
Looking ahead, projections show the unemployment rate will likely stay below the 75-year average. That means you shouldn’t expect a wave of foreclosures that would impact the housing market in a big way.
Bottom Line
Most experts now think we won’t have a recession in the next year. They also don’t expect a big jump in the unemployment rate. That means you don’t need to fear a flood of foreclosures that would cause the housing market to crash.
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 me.
REGIONAL ECONOMIC OVERVIEW
The post-COVID job recovery continues. Though data showed the number of jobs dropped in January, February saw gains that almost offset the jobs lost the prior month. As of February (March data is not yet available), the region had recovered all but 47,000 of the more than 300,000 jobs lost due to the pandemic. Of note is that employment levels in Grays Harbor, Thurston, San Juan, and Clallam counties are now above their pre-pandemic levels. In February, the regional unemployment rate rose to 4.1% from 3.7% in December. Although this may be disconcerting, an improving economy has led more unemployed persons to start looking for a job, which has pushed the jobless rate higher. I expect the regional economy to continue expanding as we move into the spring and summer, with a full job recovery not far away.
HOME SALES
In the first quarter of 2022, 15,134 homes sold, representing a drop of 5.8% from the same period a year ago, and down 31.7% from the fourth quarter.
Yet again, supply-side constraints limited sales. Every county except Snohomish showed lower inventory levels than a year ago.
Sales grew in five counties across the region but were lower across the balance of the counties contained in this report. Compared to the fourth quarter, sales were lower across all market areas.
The ratio of pending sales (demand) to active listings (supply) showed pending sales outpacing listings by a factor of 6.7. Clearly, the significant jump in mortgage rates in the first quarter has not yet impacted demand. Rather it appears to have stimulated buyers partly due to FOMO (Fear of Missing Out)!
HOME PRICES
Although financing costs have jumped, this has yet to prove to be an obstacle to buyers, as prices rose 16.4% year-over-year to an average of $738,152. Naturally, there is a lag between rates rising and any impact on market prices. It will be interesting to see what, if any, effect this has in the next quarter’s report.
Compared to the same period a year ago, price growth was again strongest in San Juan County, but all markets saw prices rising more than 10% from a year ago.
Relative to the final quarter of 2021, all but Kitsap (-2.7%), Mason (-1.5%), Skagit (-1.8%), Jefferson (-6.3%), and Clallam (-0.1%) counties saw home prices rise.
The market remains supply starved. While increases in “new” listings suggest that more choice is coming to market, it remains insufficient to meet demand.
MORTGAGE RATES
Average rates for a 30-year conforming mortgage were 3.11% at the end of 2021, but since then have jumped over 1.5%—the largest increase since 1987. The surge in rates is because the market is anticipating a seven- to eight-point increase from the Federal Reserve later this year.
Because the mortgage market has priced this into the rates they are offering today, my forecast suggests that we are getting close to a ceiling in rates, and it is my belief that they will rise modestly in the second quarter before stabilizing for the balance of the year.
DAYS ON MARKET
It took an average of 25 days for a home to go pending in the first quarter of 2022. This was 4 fewer days than in the same quarter of 2020, but 2 days more than in the fourth quarter of 2021.
Snohomish, King, and Pierce counties were the tightest markets in Western Washington, with homes taking an average of 11 to 15 days to sell. The greatest drop in market time compared to a year ago was in San Juan County, where it took 23 fewer days for homes to sell.
All but five counties saw average time on market drop from the same period a year ago, but the markets where it took longer to sell a home saw the length of time increase only marginally.
Quarter over quarter, market time dropped in Snohomish, King, and Pierce counties. Jefferson and Clallam counties also saw modest improvement. In the balance of the region the length of time a home was on the market rose, but seasonality undoubtedly played a part.
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 numbers have yet to indicate that demand is waning amid rising interest rates, but this is sure to become a greater factor as we move into the spring. A leading indicator I pay attention to is changes to list prices and, in most counties, these continue to increase. This suggests that sellers remain confident they will be able to find a buyer even in the face of higher borrowing costs. If this pace of increase starts to soften, it may be an indication of an inflection point, but it does not appear to be that way yet.
Given all the factors discussed above, I have decided to leave the needle in the same position as the last quarter. The market still heavily favors sellers, but if rates rise much further, headwinds will likely increase.
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.
The following analysis 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 me.
REGIONAL ECONOMIC OVERVIEW
Just when we thought COVID was starting to pull back, the Omicron variant made its presence known. It is still too early to suggest that this has affected the region’s economic recovery—we won’t likely know for certain until we get more job data. I remain hopeful that this latest spike in infections will not have too much of an impact, but only time will tell. To date, the region has recovered all but 51,000 of the 297,000 jobs that were lost due to the pandemic. Some of the region’s smaller counties, including Grays Harbor, Cowlitz, Thurston, San Juan, and Clallam, have seen a full job recovery. The most recent data (November) shows the regional unemployment rate at a very respectable 3.3%, which is below the pre-pandemic low of 3.7%. The lowest unemployment rates were in King and San Juan Counties, where 2.9% of the labor force was out of work. The highest rate was in Grays Harbor County, which registered 5.1%. I still expect to see a full job recovery by this summer. However, there is a growing labor shortage holding the area back. Hopefully, this will change, but some industry sectors—especially hospitality—continue to find it hard to attract workers.
WESTERN WASHINGTON HOME SALES
❱ In the final quarter of the year, 22,161 homes sold, representing a drop of 5.2% compared to the same period in 2020 and down 18.8% from the third quarter.
❱ The reason there were lower year-over-year sales is simply because the number of homes for sale was down more than 30%. The drop between third and fourth quarters is likely due to seasonality changes in the market.
❱ Although home sales were lower in most markets, there was a significant uptick in Grays Harbor and Thurston counties. The number of homes sold dropped across the board compared to the third quarter.
❱ The ratio of pending sales (demand) to active listings (supply) showed sales outpacing listings by a factor of 5.2. The market is supply starved and unfortunately, it’s unlikely enough homes will be listed this spring to satisfy demand.
WESTERN WASHINGTON HOME PRICES
❱ Home prices rose 15.1% compared to a year ago, with an average sale price of $711,008. This was 2.1% lower than in the third quarter of 2021.
❱ When compared to the same period a year ago, price growth was strongest in San Juan and Jefferson counties. All but two markets saw prices rise more than 10% from a year ago.
❱ Relative to the third quarter, every county except Island (-8.6%), Mason (-5.2%), Lewis (-2.9%), King (-2.1%), Cowlitz (-1.7%), and Kitsap (-0.9%) saw sale prices rise.
❱ Mortgage rates rose more than .2% between the third and fourth quarters, which may have impacted prices. Affordability constraints continue to grow, which is also likely to have played a part in slowing gains.
DAYS ON MARKET
❱ It took an average of 23 days for homes to sell in the final quarter of 2021. This was 8 fewer days than in the same quarter of 2020, but 6 more days than in the third quarter of last year.
❱ Snohomish, Thurston, King, and Kitsap counties were the tightest markets in Western Washington, with homes taking an average of between 13 and 16 days to sell. The greatest drop in market time compared to a year ago was in San Juan County, where it took 33 fewer days for a seller to find a buyer.
❱ All counties contained in this report saw the average time on market drop from the same period a year ago. Every county except Whatcom saw market time rise compared to the third quarter.
❱ Longer days on market might suggest that things are starting to slow, but I don’t actually think this is the case. I believe buyers are being a little more selective before making offers, and many may be waiting in the hope that supply levels will improve in the spring.
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 housing market remains in a state of imbalance, but, as I look at the data, I believe the frenetic pace of sales and price appreciation may start to soften in 2022.
This will likely be due to financing costs and affordability acting as headwinds to price growth. Mortgage rates have started to rise again, and I have forecasted them to reach 3.7% by fourth quarter. This alone will slow price growth as affordability in many areas declines.
One thing that remains unknown that could have a significant impact on the market is long-term work-from-home policies. Many businesses have not yet determined their plans for remote working, but once they do, potential home buyers who have been waiting to see how frequently they have to commute to work could immediately start their search. In addition to boosting sales, this could add inventory to the market as well.
All things considered, I am moving the needle just a notch toward buyers. However, as you can see, we are still in a market that heavily favors home sellers.
ABOUT MATTHEW GARDNER
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.
For further information about the housing market or discuss real estate in your area, please don’t hesitate to contact me.
This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.
Hello there! I’m Windermere Real Estate’s Chief Economist, Matthew Gardner, and welcome to the latest episode of Mondays with Matthew.
Before I get started, I wanted to let you know that this will be the final episode of Monday with Matthew for 2021 as I’m going to be taking Christmas off. So it’s time to offer you my forecasts for the U.S. economy and the country’s housing market in 2022.
Although many people – including myself – had hoped that COVID-19 would have become a somewhat distant memory by now, and that the economy would have recovered this was – sadly – not to be the case, and the pandemic’s influence on the economy is still being felt and all the datasets I track tell me that, although we are certainly healing, COVID continues to act as a drag on economic growth and I expect that to continue through the spring of next year – if not a little longer.
Economic Recovery & Growth
And it’s because of this that I – along with many other economists – have spent the last few months lowering our forecasts for economic growth – at least through the middle of 2022. So, let’s look at this a little closer.
Here is my forecast for economic growth through the end of next year and you will note that, even though I am cautious in regard to the economy as we move through the winter and into 2022, I am still expecting to see a fairly decent bounce back in the fourth quarter of this year following the very disappointing rate that we saw in Q-3.
And on an annualized basis, I believe that the economy will have expanded by just shy of 5% this year and come in a little below 4% in 2022.
Simply put, the impacts of COVID-19 are going to continue to act as a drag on virus sensitive consumer services next year and ongoing supply chain issues will also delay inventory restocking. Both of these impacts have a depressing effect, in more ways than one, on economic growth, but I don’t see any chance that we will fall back into a recession.
Looking at the employment picture this chart shows my forecast for average monthly growth in jobs during a quarter and to give you some context, over the last decade or so the country has added an average of around 200,000 jobs per month during any one quarter and my forecast is for more robust employment growth as we move through 2022 and, if correct, I expect to see the country return to pre-COVID employment levels in the second half of the year.
And with jobs continuing to return I’m looking for the unemployment rate to continue trending lower and breaking south of 4% during the final quarter of the year. With the expiration of enhanced unemployment benefits – in concert with wages rising significantly in many face-to-face industries such as leisure and hospitality – prospects for people currently unemployed are looking rather good. That said, there are still millions of unemployed Americans who are not looking for work even with wages rising, the labor force still down by 3 million from its pre-pandemic peak, and this is worrying as businesses continue to have a hard time finding employees which raises the expectation that inflation will remain higher for longer than I would have liked to see.
Measures of Inflation
And that leads nicely into my final economic forecast and that is my outlook for inflation. As we have discussed, supply chain issues and labor shortages have increased prices significantly and this top chart shows annual changes in all consumer prices which I expect to remain around 5% until next spring, before gradually dropping down to below 3% by the end of the year.
But the core inflation rate – which excludes the volatile food and energy sectors – won’t peak until early next year before it too starts to gradually pull back and, at these levels, the Federal Reserve will undoubtedly have started to raise interest rates to counteract inflationary pressures. This is not pretty, but I absolutely do not believe that we are in some sort of inflationary spiral, or that “stagflation” will raise its ugly head again.
U.S. Housing Market
Okay! Now it’s time to turn our attention to the U.S. housing market which was a beacon of hope during the pandemic period and, given the massive spike in demand that started last June, I’m looking for a little more than 6 million existing homes will have changed hands in 2021, but I don’t see this level increasing in 2022 – mainly due to ongoing supply limitations as well as rising affordability issues, and I’m therefore forecasting sales to pull back – albeit very modestly – next year. That said, the country has never seen more than 6 million home selling in a single year since records were first kept so the number is still very impressive.
And with the market as tight as it has been so far this year, it shouldn’t be any surprise to see median sale prices skyrocketing and, even though we have 3 more months of sales data yet to be released, I still anticipate prices will have risen by almost 16 and a half % in 2021- a quite remarkable number. This pace of appreciation has never been seen before. In fact, the closest was back in 2005 – when the housing bubble was inflating rapidly – but even then, prices only rose by 12.2%.
But, as I mentioned in my sales forecast, this pace of growth is unsustainable and I am expecting to see some of the heat to come off the market next year but, a growth rate of 7.3% is certainly nothing to sniff at.
There are three major reasons why we will see the pace of growth slow. I have already mentioned my concerns regarding housing affordability, but mortgage rates and new supply will both influence the slowdown in sales and price growth in the resale arena.
Although I do not prepare a forecast for housing affordability, this is my where I expect to see mortgage rates through the end of next year and I am looking for them to continue “stair-stepping” higher but still ending 2022 below 4% – very low by historic standards given that the long-term average for a conventional 30-year mortgage is somewhere around 7 1/2%.
Obviously, as rates notch higher that starts to compress price growth as it puts a lower ceiling on how much a buyer can afford to pay for a home.
And slowing growth in existing home prices and sales will also be a function of additional supply and this chart shows my forecast for single-family starts this year and next. I expect more than a million homes to start construction in 2022 – continuing the trend that started in mid-2020 – but I am sure that some of you may be asking yourselves that if starts are already robust, how have existing home sales been able to increase so significantly if there has been solid supply coming from homebuilders – and that would be a great question.
And I would answer this by telling you that the way the Census gathers data on start is to count the number of home foundations that have been poured, but vertical construction has not necessarily started. And what we have been seeing is a lot of foundations but not so many homes actually being built – and we know this by looking at the number of homes that are for sale but have yet to be started. So, it’s important to look at a separate number that the Census Bureau also puts out which counts the number of units actually under construction, and that number has been growing significantly over the course of the last 18 months or so.
Builders have been hamstrung with rising labor and material costs which will lead new home sales this year to fall below the number seen in 2020; however, I do expect this to pick up significantly next year and my current forecast calls for 927,000 new homes to be sold in 2022.
So, there you have it, my economic and housing market forecast for 2022.
Of course, there are still a number of variables that could lead me to revise this forecast but, as an old economics professor of mine used to tell me, “Gardner, forecast well, but forecast often!”
If everything goes according to my plan, you should expect to see the housing market start to move towards some sort of balance next year, but I am afraid that it will still remain out of equilibrium until at least 2023.
And if you’re wondering, no, I don’t see a housing bubble forming and I’m also not at all concerned about homeowners currently in forbearance, but it would be silly to say that there aren’t any issues in the housing market that concern me because there are and the biggest of which is housing affordability and this will have a significant impact on the millennial generation who are continuing to get older, and they are all – well most – thinking about settling down and, possibly, having children, and I wonder how hard it will be for many of them to be able to afford to buy their first home because most really do want to become homeowners. Will builders figure out how to build to this massive pent-up demand? I guarantee you that whoever can solve this puzzle will do very, very well.
COVID-19 caused an unparalleled shock to the US economy and the rise of the delta variant has certainly impacted the speed of our recovery but, rest assured, this particular forecaster firmly believes that we will recover and that the economy will continue to grow.
Demand for ownership housing remains remarkably buoyant and, in fact, it is quite likely that demand may actually increase with the work from home paradigm that will start to gain momentum next year. It will be fascinating to watch how this impacts not just demand, but where these buyers will ultimately choose to live.
In closing, I very much hope that you have all enjoyed the videos that I have shared this year as much as I have enjoyed making them.
As always if you have any questions or comments about this topic, please do reach out to me but, in the meantime, stay safe out there and I look forward the visiting with you all again next year.
The following analysis 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 Real Estate agent.
REGIONAL ECONOMIC OVERVIEW
The emergence of the of COVID-19 Delta variant had a palpable impact on the region’s economy, which, naturally, impacted the job recovery. Employment levels in Western Washington had been picking up steam in the spring but started to slow quite dramatically over the summer. To date, the region has recovered more than 201,000 of the jobs that were lost due to the pandemic, but we appear to be in a bit of a holding pattern. That said, the ending of enhanced unemployment benefits has led many business owners to see more applicants for open positions, so I am hopeful the numbers will pick back up as we move into the winter months. The most recent data (August) shows the region’s unemployment rate at a respectable 5%, but we still have a way to go before we reach the pre-pandemic low of 3.7%. On a county level, the lowest unemployment rate was in Kitsap County (4.4%) and the highest was in Grays Harbor County (6.6%). There are still many hurdles in front of us, but I believe we will continue to add jobs and reach full employment recovery by mid-2022.
WESTERN WASHINGTON HOME SALES
❱ Sales in the third quarter rose 6.4% year over year, with a total of 27,280 homes sold. The increase matched what we saw in the second quarter of this year.
❱ I was pleased to see sales growth continue. This rise was supported by a 28.4% increase in the number of homes for sale. Listings rose the most in Grays Harbor (+62.6%), Lewis (+53.6%), and Skagit (+52.0%) counties.
❱ Sales activity was mixed. Nine counties saw year-over-year growth, but sales slowed in six counties. That said, sales were up in every county other than King and San Juan compared to the second quarter of 2021.
❱ The ratio of pending sales (demand) to active listings (supply) showed pending sales outpacing listings by a factor of 4.6. Even with the increase in the number of new listings, the market is far from balanced.
WESTERN WASHINGTON HOME PRICES
❱ Home prices rose 18.9% compared to a year ago, with an average sale price of $726,168—another all-time record.
❱ When compared to the same period a year ago, price growth was strongest in Clallam, San Juan, and Jefferson counties, but all markets saw prices rise more than 12% from a year ago.
❱ Average sale prices pulled back 1.1% compared to the second quarter of this year. Given the massive increase in value over the past few years, it is not at all surprising. The key indicator has been a softening in list prices and that naturally translates to slower price growth. This is nothing to be worried about. It simply suggests that the market may finally be heading back to some sort of balance.
❱ Relative to the second quarter of this year, all counties except San Juan (-0.1%), Island (-0.5%), and Whatcom (-0.5%) saw higher sale prices.
DAYS ON MARKET
❱ It took an average of 17 days for a home to sell in the third quarter. This was 19 fewer days than in the same quarter of 2020, and 1 fewer day than in the second quarter of this year.
❱ Mirroring the second quarter, Snohomish, Kitsap, Thurston, and Pierce counties were the tightest markets in Western Washington, with homes taking an average of 9 days to sell in Snohomish County and 11 days in the other three counties. The greatest reduction in market time compared to a year ago was in San Juan County where it took 102 fewer days for homes to sell.
❱ All counties contained in this report saw the average time on market drop from the same period a year ago, but eight counties saw market time rise from the second quarter; however, the increases were minimal.
❱ Even with inventory levels increasing in most markets, the region’s housing market remains remarkably tight. That said, I do see some of the heat dissipating and I am hopeful that if inventory levels continue rising, we will start a slow move back toward a balanced market.
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.
Even given the speedbump that hit the region’s economy with the emergence of the Delta variant, the housing market remains remarkably resilient. Demand from buyers continues to be very strong, and modestly increasing inventory levels appear to have—at least for the time being—reduced some of the fever from the market. Mortgage rates remain very favorable, and my current forecast is for them to stay in the low- to mid-3% range until next summer. Rising inventory levels have led price growth to slow and days on market to start increasing, which may be a sign that the market is retreating from a prolonged period of exuberance.
As we move through the balance of the year, I believe demand will remain solid, but we will continue to see price growth soften as more listings compete for the buyers that are out there. That is not to say price growth will turn negative; rather it suggests that we are slowly moving back toward a more balanced market. That said, the market certainly still favors home sellers. As such, I am leaving the needle in the same position as the second quarter. I may move it a little in the direction of buyers next quarter if the current trend continues through the winter months.
ABOUT MATTHEW GARDNER
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.
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