Rising mortgage rates add to affordability crunch for Seattle-area homebuyers

It’s no longer just sky-high prices and low inventory that are squeezing Seattle-area home buyers. Add to the list: rising interest rates.

After hitting lows at the start of the pandemic, mortgage rates have risen steadily this year amid concerns about inflation. Since the start of the year, the average rate on a 30-year mortgage has jumped from 3.22% to 4.72%, the biggest three-month jump since 1994, according to Freddie Mac.

Rising rates could finally begin to temper the runaway housing market after dozens of buyers sought to take advantage of low rates or move out over the past two years. Nationally, home prices rose nearly 19% last year and 14% in King County. Many economists expect that growth rate to slow this year.

But for those still trying to buy in expensive markets like Seattle — especially buyers with less to spend — rising interest rates present another challenge.

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

With rapidly changing rates, “you’re talking about buying a house for more than you anticipated a short time ago,” Murphy said. “If you haven’t spoken to your lender since November, you should.”

As Zachary St. John and his girlfriend searched for a home in Thurston and Pierce counties this spring, higher interest rates made an already difficult search even more difficult.

The combination of bidding wars and higher interest rates led the couple to stretch their maximum budget beyond their initial $425,000 and begin planning to rent a room in their new home at a roommate or Airbnb guest to cover monthly fees.

“We just can’t be that competitive,” said St. John, who works for a nonprofit and whose girlfriend is in school to become an elementary school teacher. “The homes we are reviewing are the least expensive livable homes in Western Washington.”

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

Median home prices were $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 Lu, branch manager at a Movement Mortgage branch in Renton. “Prices keep going up, but their buying power is decreasing by $50,000 to $100,000 every month.”

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

After falling in some areas at the start of the pandemic, rents have rebounded in the Seattle area. In King County, the median rent for new leases is up 19% from the same period in 2021, according to Apartment List. Rents are up 11% compared to the same period in 2019, before the pandemic.

Homebuyers facing both rent hikes and rising interest rates are “in panic mode,” Lu said.

To cope with rising costs, brokers and lenders say some buyers are looking to areas farther from Seattle, partnering with family members to buy, or taking advantage of loans or gifts from relatives, although that not everyone has access to this type of help.

Trisha Marques and her husband searched 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 at Magnolia, where they rent, but recently had 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 at an advertising agency, said the couple had broadened their search to other neighborhoods, including Ballard and Fremont, and talked about buying a house “a bit more old and needing a bit more work to be able to fit in here.

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

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

Nationally, a greater share of home sellers are lowering their prices, according to Redfin. The company’s chief economist, Daryl Fairweather, said in a statement, “Sellers can no longer overprice their home and expect buyers to slam at their door. That’s because higher mortgage rates eat into homebuyers’ budgets.

In parts of the Puget Sound region, home buyers are buying fewer homes than this time last year. Pending sales across King County were down 11.5% in March from the same time last year, according to the SEO service. Pending sales were down 8.6% in Pierce County, roughly flat in Snohomish and up 8.7% in Kitsap.

Still, inventory is tight. More new homes came up for sale last month than in February, a sign of the usual spring rally. Even so, by a metric known as inventory months, it would take less than two weeks to sell all homes for sale in King, Pierce and Snohomish counties at current demand. The SEO service once considered four to six months of inventory a “balanced” market.

“Some buyers are scared or discouraged by rising interest rates, but I also have buyers who think interest rates will only continue to rise, so that also puts pressure to buy a home. even faster,” said Bellevue-based agent Windermere. said Taylor Brazen Tagger.

For a pair of Brazen Tagge clients, rising rates between the end of last year and March caused the price of the home they could afford to drop from $940,000 to $800,000 in order to maintain the same monthly payment. “We had to broaden our search even further,” she said.

St. John finally found a break last weekend, when he and his girlfriend secured a 1940s two-bedroom house in Olympia near the state capitol campus for $435,000. After paying for a lower interest rate, known as a rate “cut,” the couple landed at 4.63%, St. John said.

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

“I really feel like if we don’t get a house in this interest rate hike, or the next one or two, it’s going to be out of reach for us.”

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