Rising Mortgage Rates Increase Affordability for Seattle Home Buyers

It is no longer just the high prices and the thin stock that are squeezing home buyers in the Seattle area. Add to list: increase interest rates.

After reaching low levels earlier in the pandemic, mortgage rates have been steadily rising this year amid inflation concerns. Since the beginning of the year, the average interest rate on a 30-year mortgage has risen from 3.22% to 4.72%, the biggest jump in three months since 1994, according to Freddie Mac.

Rising interest rates could finally begin to mitigate the dramatic housing market, with dozens of buyers trying to take advantage of low interest rates or relocate over the past two years. Nationwide, house prices have risen almost 19% last year and 14% in King County. Many economists expect growth to slow this year.

But for those still trying to buy in expensive markets like Seattle – especially buyers with less to spend – raising interest rates poses another challenge.

For every 1% increase in interest rates, home buyers can afford about 10% less for a home, said Jim Murphy, of Caliber Home Loans in Kirkland.

With rates changing rapidly, “you’re talking about buying a home for more than you expected a while ago,” Murphy said. “If you have not spoken to your lender since November, you should.”

As Zachary St. John and his girlfriend were looking for a home in Thurston and Pierce County this spring, with higher interest rates making an already difficult search even more difficult.

The combination of bidding wars and higher interest rates has led the couple to expand their maximum budget beyond the original $ 425,000 and start planning to rent a room in their new home to an Airbnb roommate or guest to cover the monthly its cost.

“We can not be so competitive,” said St. John, who works for a non-profit organization whose girlfriend goes to school to become an elementary school teacher. “The homes we’re looking at are the cheapest homes in Western Washington.”

The median home price in King County last month was $ 930,000, up 8.4% from the previous month and 12.7% from last year, according to data released Thursday by the Northwest Multiple Listing Service.

The average home price was $ 557,000 in Pierce County, $ 505,000 in Thurston, $ 800,000 in Snohomish and $ 538,500 in Kitsap.

“It’s a double whammy,” said June Lou, a branch manager at a Movement Mortgage branch in Renton. “Prices continue to escalate, but their purchasing power decreases by $ 50,000 to $ 100,000 each month.”

The rise comes as first-time buyers face another rising cost: rent.

After falling in some areas early in the pandemic, rents have recovered throughout the Seattle area. In King County, the average rent for new leases increased by 19% compared to the same period in 2021, according to List of Apartments. Rents increase by 11% compared to the same period in 2019, before the pandemic.

Homebuyers facing both rent increases and rising interest rates are “in a state of panic,” Lu said.

To cope with the rising costs, brokers and lenders say some buyers are looking for areas farther away from Seattle, working with family members to buy or use loans or gifts from parents, although not everyone has access to this type of help.

Trisha Marques and her husband were looking for their first home in Seattle after the couple and their young children moved to the area in late 2020 to be closer to family. They hope to stay in Magnolia, where they rent, but have recently been forced to cut their budget from $ 1.3 million to $ 1.2 million due to rising interest rates.

Marques, who works in marketing and whose husband works in an advertising agency, said the couple has expanded their search to other neighborhoods, including Ballard and Fremont, and talked about buying a home that is “a little bigger and it takes a little more work to get I can get in here. ”

“We’ve had all kinds of discussions, we can’t afford it in Magnolia, but can we afford it in Seattle? “It’s difficult,” Marques said.

The market still feels competitive for many buyers, but there are signs of cooling.

Nationwide, a larger share of home sellers are dropping their prices, according to Redfin. The company’s chief economist, Daryl Fairweather, said in a statement, “Sellers can no longer overpay their home and are still waiting for buyers to shout at their door. “This is because higher mortgage rates are eating away at home buyers’ budgets.”

In some areas of the Puget Sound area, home buyers are buying fewer homes than they did last year. Outstanding sales across King County fell 11.5% in March from a year earlier, according to the import service. Outstanding sales were down 8.6% in Pierce County, almost constant in Snohomish and up 8.7% in Kitsap.

However, the stock is limited. More new homes were put up for sale last month than in February, a sign of the usual spring uptrend. Even so, according to a measure known as inventory months, it would take less than two weeks to sell all the homes for sale in King, Pierce and Snohomish County in current demand. The import service once considered four to six months of stock to be a “balanced” purchase.

“Some buyers are scared or rejected by rising interest rates, but then I also have buyers who think interest rates will continue to rise, so there’s pressure to buy a house even faster,” said Bellevue-based Windermere agent. said Taylor Brazen Tagge.

For a couple of Brazen Tagge customers, raising interest rates from late last year to March reduced the price of a home they could afford from $ 940,000 to $ 800,000 to maintain the same monthly payment. “We had to broaden our search even further,” he said.

St. John finally found a break last weekend when he and his girlfriend secured a 1940s two-bedroom house in Olympia near the Capitol campus for $ 435,000. After you pay to get a lower interest rate, known as “Buying” the interest ratethe pair landed at 4.63%, said St. John.

The house will need some work, but “we all went for what we had,” he said.

“I really feel that if we do not get a house in this interest rate hike, or the next one or two, it will be impossible for us.”

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