Seattle Real Estate News

Since 2020, the income needed to afford a typical house in the Seattle-area has almost doubled from $120,000 in 2020 to $214,000 in 2024 – thanks to skyrocketing home prices and interest rate hikes. Mortgage rate increases over the last 18 months  drove up the monthly cost of buying a home. At the same time, a shortage of homes for sale kept Seattle-area home prices from plummeting.

Real estate economists expect interest rates to dip some in 2024, but not to drop dramatically since it's an election year and the Fed seems  happy with it's current inflationary policy.  Fannie Mae projects the rate on a 30-year fixed mortgage will average 6.7% in 2024 and 6.2% in 2025, as the Fed continues to try to fight inflation. Lawrence Yun, chief economist at the National Association of Realtors, has a similar, but slightly lower, projection that rates will average 6.3% in 2024.  

Despite the modest cooling in late 2023, a buyer in the Seattle area now needs an annual household income of nearly $231,000 a year or twice the city's median household income to afford the area median price of nearly $750,000. 

While the income needed to afford a home shot up 79% from January 2020 to January 2024, median income in the region increased only about 22%, the analysis found. According to Zillow’s based on the housing affordability index from the Washington Center for Real Estate Research at the University of Washington, homebuyers earning the median income can afford a median-priced home in only two of Washington’s 39 counties, Lincoln and Columbia. The index assumes a 20% down payment and a household spending only 25% of its gross income on mortgage payments. People are renting longer instead of buying a home.

Despite recent rate cuts from the Federal Reserve, a major structural problem remains - close to 60% of homeowners have outstanding mortgages that are locked in at rates below 4% according to Redfin. Few homeowners are listing their properties for sale due to this “lock-in-effect” or golden hand cuffs" either they bought their house or refinanced during the pandemic era (2020 – 2022). Even, if they are willing to sell – their purchasing power is reduced drastically due to high mortgage rates.  That combination has throttled the housing market as homebuyers struggle to get in the door. 

So, how are homebuyers coping?

• Many homebuyers are spending more than 40% of their income on housing (10% more than what is recommended).
• Some buyers rely on loans or gifts from family members to help cover down payments and closing costs.
• There are several financing options for homebuyers with low down payment - HomeReady program with 3% down payment or FHA with 3.5% down payment or VA financing with 0% down payment.
• Others are teaming up with friends to afford a home or leaning toward condos and many are simply waiting longer to buy. 
• Work with a mortgage broker to obtain better mortgage rates.

For those who succeeded in the current market – congratulations since property appreciation and Return on Investment (ROI) have been in double digits.

Since 2020, home values have skyrocketed particularly in outlying areas that offer more space and affordability. For example, according to ZIP-code-level data from Zillow, the value of a typical home in a zip code covering Seattle’s Capitol Hill and Central District neighborhoods increased about 8% from 2020 to 2024, compared to 51% in a Renton zip code and 61% in Mill Creek.