Seattle home prices down a smidge, but nowhere close to affordable yet
Various indicators show a slowdown in the real estate market in the central Puget Sound area. That has raised hopes that homes could become much more affordable soon.
Don't hold your breath.
According to data from Zillow, it’s true that average home values have come down by about 6% since the real estate market peaked in April.
Over a third of homes for sale have been cutting their price lately, but those savings are eclipsed by the 48% increase in home values since September of 2019, just before the pandemic.
"The key to making housing more affordable is an increase in supply," said Orphe Divounguy, a senior economist at Zillow.
There are many reasons the supply of homes is constrained: Restrictive zoning policies, for example. Now, market forces are worsening that underlying shortage. A major problem, currently, is that home owners are not selling.
"They are locked into these low 2.5%, 3% fixed rate mortgages, and they’re not willing to trade them for a much higher rate today," Divounguy said.
Mortgage rates today are around 7%.
Nationally, the supply of homes for sale is 3% higher than it was a year ago, but still 38% lower than in 2019.
These underlying factors have led home values to rise beyond what most people in Seattle can afford.
"In Seattle, homes are about 26% above where they would need to be for affordability to return to normal," Divounguy said.
What can the average household afford?
The average annual household income in King County is $100,000, according to 2020 census data. In Seattle, it's $97,000.
At those income levels, assuming current interest rates and a 20% down payment, this hypothetical average household could afford a home that costs $350,000 or less.
On Zillow, there are no single family homes available at this price in Seattle (as of noon on October 28). There are two townhouses under that price cap.
Condos are more abundant, though monthly HOA fees mean that our hypothetical average household could only afford to spend $323,000 on a condo.
There are 28 condos listed in Seattle on Zillow at that price, mostly in older buildings.
Of course, many people earn far less than this average household income. For many of these households, there's almost nothing to buy.
Renters who wish to buy a home of their own, but cannot find anything, stay in the rental market. That increased competition allows landlords seeking to recoup pandemic losses to raise rents.
According to rent-tracking website Dwellsy, average (median) rent in the greater Seattle metro area (which includes Tacoma, Bellevue, Everett) is $2,365, which is $375 higher than a year ago.
As with home prices, recent monthly rent decreases of 1% or so are overwhelmed by the average annual increase of 18.5% over the last year.
The National Association of Home Builders has suggested cities should allow more "missing middle" housing. In Seattle, this could mean opening up areas currently reserved for single family homes (along with one backyard cottage and mother-in-law apartment) for the development of townhomes and small apartment or condo buildings.
However, many experts say it could take decades for zoning reforms like that to drive prices down far enough that most everyone can afford to buy something, even if it's small. For that reason, these experts say government (and taxpayers) or private companies that drive job growth would need to pay much higher subsidies to bring costs down.
The NAHB has also called on the Biden administration to suspend tariffs on lumber from Canada and invest heavily in training new skilled construction workers.