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What does 2023 hold for the Seattle area housing market?

caption: Homes are shown in the Beacon Hill neighborhood of Seattle in July of 2020.
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Homes are shown in the Beacon Hill neighborhood of Seattle in July of 2020.
KUOW Photo/Megan Farmer

It's a new year, and if you're in the market for a new home, you're probably hoping the market outlook is also new — and improved.

Last year was marked by record high home values and extreme competition among buyers, but things did shift a bit toward the end of the year.

Now, Redfin says Seattle is the fastest-cooling market in the nation.

Daryl Fairweather is Redfin's chief economist. She spoke with KUOW's Angela King about the year ahead in housing.

This interview has been edited for clarity.

Angela King: First of all, explain to our listeners how Seattle's market went from red hot to not quite ice cold, but definitely cooling off. What's been going on?

Daryl Fairweather: Well, the housing market is reacting to much, much higher mortgage rates. Last year, you'd get a mortgage for around 3% for a fixed-rate mortgage, and now, you're looking at more like 6.5%. That has made it much more expensive to buy a home, and a lot of buyers just don't have the money to pay for these higher mortgage rates. So, they sit out of the housing market, or they look somewhere more affordable than Seattle. And that has really hurt Seattle home values.

So, what are you expecting from the market this year?

As long as mortgage rates stay high, the housing market is going to continue to cool, and also as the overall economy looks to be a little bit on shaky ground. A lot of economists, myself included, are expecting a recession this year. So, it's not exactly good news for anybody in the economy. But if you happen to be in a position where you're ready to buy a home and able to do so, then you're in the driver's seat. You can ask for concessions. You can have the home on your terms, at your pace.

This is pretty unusual. There hasn't been a housing market like this in Seattle for at least four years, maybe even longer. So, I think buyers, if they are in a financial position to do so, can really take advantage of this moment.

How about increased inventory?

Well, inventory depends on how you look at it. Fewer homes are being listed onto the market. But the homes that do come on are sitting on the market longer. So, if you're looking at Redfin, you're going to see more homes for sale right now than you would have this time last year. But homes aren't being added to the market as much; it's just that they're sitting there longer.

What does all of this and this cooling down to the market mean for renters?

Rents are looking softer and softer in terms of inflation. Rent prices are not going up quickly compared to historical trends. So, I think there's also the argument to be made to rent for a bit and postpone buying a home. But like I said, the housing market inevitably is going to take off again, so delaying the decision might backfire. Overall, I think it's good news that people aren't seeing their rents increase too much this year.

Last summer, we saw particularly high spikes. Considering we are going into this cooling trend and things are looking a little rocky this year, could we see a less competitive summer, too? Or do buyers need to jump in on the housing market while they can in the winter and spring?

I think as soon as the economy starts to look more stable, as soon as inflation comes down, the housing market is just going to go on another tear. If you time your purchase for exactly the moment that mortgage rates fall but prices have not yet adjusted, then that could save you some money. But it's really difficult to time the market, and especially with such low inventory, I think the bigger challenge is just to find a home that you like and you want to stay in for the long term.

Well, affordable housing is a big issue, obviously. Seattle is voting on a social housing initiative in a special election this February. It would establish a public developer to build permanently affordable housing. What's your take on this proposal, and how do you think it might affect the local housing market?

Public development can be a great option for increasing the supply of homes, because as a public developer, they can take advantage of public land and may be able to cut through red tape a lot more efficiently than a private company would be able to. So, I think anything that serves to increase the supply of housing is going to be good for all residents of Seattle. Nobody wants to live in a place that has inequality so stark that there are people left unhoused. Any movement in the direction to build more housing is a good thing.

We also have a new legislative session beginning January 9, and housing is a top priority for the governor and lawmakers. Are you looking for anything out of this session that could affect the Seattle market specifically?

In general, I hope to see more zoning reforms. There's really no reason to have single-family zoning in the city of Seattle when there are people who desperately need affordable housing.

So, do you think the state should get involved in zoning laws that are currently up to the cities?

California has taken that action because so many local municipalities have failed to build housing. I think Seattle has done a better job than say Huntington Beach, but I think there could at least be carrots and sticks put in place to accelerate these zoning reforms.

You've given our listeners some good things to consider. Anything else you think could help them as they weigh these decisions about whether and when to buy?

One thing to take into account is that the economy may be heading for a recession, and your personal income or employment may be put at risk. I think people kind of underestimate that risk. They think that their job is safe if they've had it for a long time, but we've seen a lot of companies do layoffs. So, I think it's always something to be prepared for. Make sure you have an emergency fund. Don't stretch your budget with your housing budget and not have any money left over for saving for a rainy day.

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