Are you feeling the shift in the market? Most people in the Pierce County housing market have felt a shift, and all of a sudden see homes being featured for a little longer. The notion that buyers have to sacrifice everything just to get an offer accepted by a seller is slowly dissipating.
Is the sky falling? Will houses ever sell again? What’s happening?
Every Spring, the real estate market hits a cycle where we have an increase in inventory as the days get longer and the sun begins to shine. Flowers are blossoming and people start looking at homes as they thaw out from the Winter months… more signs are in yards, providing daily reminders to commuters that we’re in peak housing season.
We’ve been in a sellers market since 2015, so does this mean we’re going back to a buyers market? Well, not quite yet. A buyers market would mean our months of inventory is sitting at 3 to 6 months.
Take a look at our months of inventory graph; you’ll notice every year we have an inventory run up from the beginning of the year. This graph shows Pierce County’s residential inventory for the past 5 years. In that time, housing inventory in Pierce County typically peaks out around July or August consistently.
So if we’re still in a seller’s market, why does it seem like we’re slowing down?
Since we know we will have slightly increased inventory due to our market cycle, we already know there will be more options, and by sheer supply numbers demand will subside slightly. That wasn’t the case when the interest rates were at historic lows last year, and buyers had incredible buying power (i.e. they could borrow money at historically low rates and afford higher prices). The FED also warned us that going into 2022 they would be increasing rates to help tide inflation. We spoke about this on the insideABODE podcast last December. What we did not expect is the speed in which the rates rose. So far this year, the mortgage rates have risen 1.5%, the quickest in 20+ years. The sudden shift in interest rates means that buyers who may have been pre-approved just a month ago at say, 3.5%, are now looking at needing to get pre-approved again at the newer rate. The newer, higher rate would mean they would have to take out a loan at a higher interest rate, thus reducing the amount qualified to purchase a home. Some buyers in the market now will need to be pre-approved at the new rates, and lower price point.
The silver lining in all this is while the rates ‘increased,’ they are still at pre-pandemic levels, which are still much lower than the average from 1978-2022, which stands at 7.78%. In the graph below, take a look at the rates over the last 5 decades.
How raising rates impacts everything else
The FED is raising the interest rates to increase the cost of borrowing money. The impact can point to less cars are purchased, less homes being purchased, and businesses not being able to expand or hire at the rates they were when it was cheaper to borrow money. Therefore less jobs can be attained, and potentially in some cases layoffs or reduction in force, which results in less spending due to jobs being cut. The latter part of this paragraph has yet to play out on a large scale, but something to be aware of in the coming months.
So how does this impact our area and what does that look like?
Let’s take a look at the Pierce County housing market. We’ll take the data from just the month of May (May 1st to May 22nd):
In Pierce County, there has been 771 Pending homes, and 577 active homes. When active homes are less than pending, that’s a market that favors sellers, since there are less active homes. Your chance of selling then, is 134%, or 34% higher than a 100% chance of selling.
As mentioned earlier, the months of inventory is a number we look at to tell us whether it’s a seller’s or buyer’s market. That means if we stopped listing homes at this moment, that is how long it would take to sell all the homes. 3 to 6 months of inventory is considered a balanced, healthy market. The last time we had 1 month of inventory in Pierce County was late 2019 (December). Since that time, we have been in a market with less than one month of inventory.
So far in the month of May, Pierce County months of inventory sits at 0.9 months of inventory; an increase from 0.7 in May of 2021. Months of inventory has been trending upward the last 3 months.
Based on the graph above, chances are likely we will see one month of inventory and above in the coming months.
Let’s take a look at Tacoma and Lakewood, just in the month of May (May 1st - 22nd)
|Chance of Selling||146%|
|Months of Inventory||0.9|
|Chance of Selling||126%|
|Months of Inventory||0.9|
As you can see, both Tacoma and Lakewood still have more than a 100% chance of selling (more pending homes under contract than active listings). Both areas in the month of May have hovered around one month of inventory… this is good and healthy for the market! Tacoma also is trending along with Pierce County, at just under a month of inventory. All areas have increased inventory significantly from the same time last year.
What about prices? Will prices continue to climb?
In the short-term as we have more inventory on the market, and higher rates, we will have a portion of buyers now unable to afford the current market prices. We will also have those who still can afford to search for homes, but have less buying power than 3 months ago. When combined with more inventory (which we typically see around this time), the month of May has seen a slow down in activity, which has resulted in homes selling at list price, taking more time to sell, and showings have trended down.
This does not mean we’re out of a seller’s market, we’re just leaning towards a more healthy market, with options for buyers. Those options mean there may not be 25 showings and 10 offers on your home in less than 48 hours; moving to a healthy market means we’ll see homes on the market for longer periods of time, and perhaps less offers, or maybe even a price improvement. Remember the days when just getting AN OFFER on your home was the goal? We’re there at the current moment... and really, that’s ALWAYS been the goal!
Can the shift change course and go back to the upside? Of course it can. However with the macro global sentiment in the markets, a war, inflation... it’s hard to say when or if that change will occur in the short term. At the current moment, the amount of offers depends on the demand of the property; location, condition, marketing, timing of that hyper local market, etc.
We do know that since 2012, prices for homes in Pierce County have continually increased year over year from a median price of $168,450 to $564,000 without much of an extended correction. That’s approximately a 334% increase over ten years.
In the short term, it’s hard to predict if the prices will continue to increase at the rate they have the last ten years. In the long term, the Pierce County area is still a great place to purchase a home and build equity over time. In fact, Washington is one of the top 5 most equity rich states in the United States, according to Bankrate.com. Home prices in Pierce County have consistently been on a year to year upward trend since 2012, and this month the Pierce County median price is on track to set another record high median price at $586,000.
There’s a chance we will see a slowdown in the rate at which prices increase, which is healthy. How long? That remains to be seen.
How Do I Navigate This Market?
Contact a local realtor who is educated on what is happening in the market. Look at what brokerage they are connected to, and what content you can glean from that brokerage, or brokers within the same brokerage. Find a lender who can speak to the current conditions and the macro level economic landscape.
Sellers, the market can change from week to week, location to location in the current conditions. As a seller, it may be time to buckle down and really prep that home to make it stand out, as there will be competition now. Doing that prep work will pay off now more than ever.
Also, understand we are in a different market than even one month ago, or the beginning of the year. As earlier stated, we still will have more inventory on the way, so it may take a little more time to sell your home. Selling in one or two days is not a normal market, nor is it sustainable! We truly were in a historic time the last couple of years. We are now moving to a more healthy market, where prep work, negotiations, great marketing, local knowledge and expertise will be a major factor in selling your home.
Buyers, get pre-approved again, and continue to stay in touch with your lender and trusted real estate advisor. The macro market is in an interesting place right now, however that doesn’t mean buying is off the table; with the interest rates hovering around 5% with inflation rates at 7-8%, there’s still an advantage to investing in a home… you’re still beating the market! Especially in Pierce County... we have amenities, downward pressure from Seattle, a robust military base, surrounded by corporate giants like Amazon, Boeing, and Microsoft... and our space to build is limited due to the Puget Sound (can’t build on water!) and single family zoning.
Demand for housing in Pierce County will persist.
In past Spring markets, we have seen an increase in inventory, then the buyers follow into the market. The last two years we have had historically low mortgage rates, which helped more buyers take advantage of borrowing money for free, basically. This market is no different than past markets from an inventory standpoint; we’re seeing an increase up to about a month of inventory, and we may see a little higher in July and August. A ‘balanced’ market is 3 to 6 months of inventory, so we’re still in a seller’s market. Well positioned, marketed and prepped properties will still sell.
What also makes this market different are the macro economic events; coming out of a pandemic, the FED increasing rates to slow down inflation, and an unexpected sharp rate hike in the first half of the year. With the FED announcing more rate hikes in the future, that leaves buyers in a tough spot, slowing them down and decreasing buying power. Of course, we also have a war overseas with a major international economic player as well.
Pay attention, stay diligent, and stay in touch with your lender and local real estate agent for more local, on the ground information.