EVERETT —Pickings are slim — the number of homes for sale in Snohomish County is down 50% from a year ago.
Borrowing is expensive — the interest rate on a 30-year-fixed-rate mortgage is more than 7%, up from 5.6% a year ago and 3% two years ago, according to Freddie Mac.
And mortgage rates are likely to rise again after the Federal Reserve raised interest rates by a quarter of a percentage point last week.
The overall real estate market is cooling but one segment is booming.
Homes in the affordable and mid-price range are hot properties, J. Lennox Scott, executive officer at John L. Scott Real Estate told the Northwest Multiple Listing Service.
In those two categories, “We are observing a virtually sold-out market which has been sending prices higher,” Scott said.
Smaller homes and starter homes in the $400,000 to $600,000 price range are flying off the shelves, often going under contract in a week, local real estate agents say.
Does that seem high for a starter home?
Consider this: in June, the median price for a single-family Snohomish County home or condo was $749,950, virtually unchanged from a median of $750,000 a year ago, according to data from the Northwest Multiple Listing Service.
The median is the point at which half of all homes sold for more and half sold for less.
Home ownership is a goal for many, so there’s plenty of pent-up demand, said George Montemor, real estate agent with Windermere Real Estate in Mill Creek.
Montemor is seeing some potential buyers re-enter the market after sitting on the sidelines for the last year or two.
Many left the playing field after being consistently outbid when interest rates were lower.
Now, they’re back with even larger down payments.
A few bids are still common, but “in this market, it’s not nearly as competitive,” Montemor said.
When mortgage rates were lower, a seller might receive 10 or more offers, often tens of thousands of dollar or more over list price, he said.
Also on the plus side, buyers are feeling less pressure to waive inspections and appraisals, Montemor said.
Colleen Thorsen, real estate agent with John L. Scott Everett, said that homes in the affordable range, “under $500,000 or $600,000 are being snapped up really quickly.”
But it’s still a sellers’ market due to low inventory, Thorsen said.
In June, the number of active listings in Snohomish County was 923 compared to 1,831 a year ago, a 50% drop, according to the listing service.
Waiting on the boss
On Tuesday, the average rate on a 30-year-fixed rate mortgage was 7.23 %, according to Bankrate.com.
Most homeowners, 99%, have a current mortgage rate that’s less than 6%, according to Fortune magazine.
They may want to sell their home but they’re stymied by high interest rates and simply can’t afford to upgrade.
As the cost of borrowing increases, home ownership becomes less affordable and a monthly payment buys less house, local real estate experts say.
One turn of events that may force their hand sooner rather than later is “being called back to work,” Thorsen said.
During the Covid-19 pandemic, some people bought property miles from the office, thinking they could easily work from home.
Tech workers, in particular, who once commuted to an office in Bellevue or Seattle, were among those who bought homes in Snohomish, Island or Skagit counties.
Now, they’re being called back to work, and face a lengthy commute.
“There’s a couple I know that bought a house in Island County a few years ago,” Thorsen said. At the time of their purchase, they thought they would work from home for the balance of their career, she said.
“Thankfully, they hung onto the condo they owned in town because they got called back to work,” she said.
For others, “it’s a wait and see game with them,” Thorsen said. “They’re waiting on their employers.”
When will interest rates go down?
One way to lower your monthly mortgage payment is with a temporary buydown, which is usually paid for by a seller or builder, Montemor said.
One of the most popular buydown terms is a 2-1, he said.
With a 2-1 buydown, a 7% mortgage rate is reduced to 5% the first year. The second year it increases to 6% and then returns to 7% the third year, according to lenders.
When interest rates go down, a homeowner can refinance their home for a lower rate.
Temporary buy downs and other mortgage rate options “takes coordination from a buyer and seller,” Montemor said.
Experts say interest rates may not drop until next year.
“Possibly in 2024, but it will depend on the Fed’s decisions about raising rates in the second half of the year,” Mark Fleming, chief economist at First American Financial Corp told CBS MoneyWatch.
Last week, the Federal Reserve raised the interest rate a quarter point, to the highest level in 22 years.
“Even if they do go down, it won’t be back to the rates of yesteryear. 6% mortgage rates used to be normal, and that’s more reasonable to expect too,” Fleming cautioned.
Despite higher mortgage rates, home ownership is still a smart investment. Home values tend to go up over time, potentially outweighing the cost of a higher mortgage rate, Montemor said.
“There’s talk on the street, the Federal Reserve is looking at lowering interest rates in 2024,” Thorsen said.
“If that happens we will we have a hot market,” Thorsen said.