Uncategorized December 1, 2021

Puget Sound Market Update 12/01/21


The continued complexity of the housing market has left many of Real Estates biggest players looking for answers. Once the beacon of security, predictability and slow-but-steady price appreciation (4.6% since 1980), housing has now become a wildcard thanks to the multitude headline worthy factors.

Since there is no industry consensuses, lets look at the four wildly differing forecasts available to us:

1. On the High Side Projections
Zillow: ▲ 13.6%
Goldman: ▲ 13.5%

Perspective: The largest 12-month price appreciation we saw prior to the 2008 housing crash was 14.1%.

Meaning: More and more buyers will be priced out of the housing market.

Why? Low housing supply plus a strong demand, especially from the first-time homebuyer millennials entering the market.

2. Middle-of-the-Road Projections
Fannie Mae: ▲ 7.9%
Freddie Mac: ▲ 7.0%

Perspective: Falling back closer to the historical average of 4.6% (since 1980).

Meaning: Housing will still be outpacing purchasing power. Mortgage rates will be need to remain low to allow first-time buyer to enter the market.

Why? Less frenzy to escape the cities, inflation helping pad prices, but a low enough supply to fuel competition.

3. Substantial Deceleration in Price Growth
Redfin: ▲ 3%
CoreLogic: ▲ 1.9%

Perspective: Less than historic appreciation, somewhat like a hangover from the COVID frenzy and downward pressure from mortgage rates

Meaning: Price growth getting stalled due to rising mortgage rates. Especially as the Fed is actively changing its policies.

Why? 30-year fixed rates are expected to climb from 3.1% to 3.5-3.6% by end of year 2022. This half-a-percentage change would cost an additional $50,000 more for a $500,000 30-year loan. Also, how will corporate America continue to support working from home? If we see a return to the office, this could push down demand for second homes and metropolis exurbs (such those around Seattle).

4. Price Reduction?!?!?
Mortgage Bankers Association: ▼ 2.5%

Perspective: Even higher interest rates predicted by Fannie Mae.

Meaning: Interest rates have a 1-to-10 rule of thumb. For every 1% of interest increase, housing prices reduce by 10%. MBA predicts that by Q4 of next year,
we’ll see 30-year fixed rates at 4%. Meaning almost a 1% increase in interest rates.

Why? Inflation will pressure Fed to increase interest rates slightly more than originally anticipated.


What do I think will happen locally?

We’ll probably see fluctuation between middle-of-the-road (during the spring season) and historic appreciation (during late summer and fall) as interest rates start weighing on buyers.

With our already high prices, a 5% increase in appreciation would mean big bucks for most buyers – especially when interest rates start climbing in to the high 3’s.

Thanks for reading. Hope you got some good value out of this!