The following analysis of select counties of the Western Washington real estate market is provided by Windermere Real Estate. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere Real Estate agent.

Regional Economic Overview

The pace of job growth continues to slow in Western Washington, as the region added only 21,907 new positions over the past 12 months. This represented a growth rate of 1.4%, which was the lowest pace of new jobs added since the pandemic ended.

The regional unemployment rate in August was 5.8%, which was marginally below the 6% rate we saw in the same quarter in 2022. A few smaller counties lost jobs over the past 12 months while King County’s employment levels rose a meager .4%, mainly due to job losses in the technology sector. I’ve said before that I’m not convinced that the U.S. is going to enter a recession; I still stand by that theory. Slowing job growth does not necessarily need to be a precursor to a recession, but I expect that we will see lackluster growth until next spring at the earliest.

Western Washington Home Sales

❱ In the third quarter of 2023, 14,970 homes sold. This was down 22% from the third quarter of 2022 and 1% lower than in the second quarter of this year.

❱ Sales fell even as the average number of homes for sale increased 29.5% from the second quarter. This is clearly a sign that significantly higher mortgage rates are having an impact on the market.

❱ Sales fell in all counties except San Juan compared to the third quarter of 2022. They were up in 9 of the 14 counties covered in this report compared to the second quarter of 2023. San Juan, Mason, Grays Harbor, and Whatcom counties saw significant increases.

❱ Pending sales fell 6% compared to the second quarter of this year, suggesting that closings in the upcoming quarter may be lackluster unless mortgage rates fall, which I think is highly unlikely.

Western Washington Home Prices

❱ Prices rose 2.8% compared to the third quarter of 2022 and were .6% higher than in the second quarter of this year. The average home sale price was $776,205.

❱ Compared to the second quarter of this year, sale prices were higher in all counties except Grays Harbor (-.5%), Kitsap (-1.5%), Clallam (-1.6%), Whatcom (-2.6%), and Skagit (-3%).

❱ Compared to the prior year, the pace of price growth slowed in the third quarter. This wasn’t too surprising given that the market was coming off record high prices in the summer of 2022. But what was surprising was that prices rose over the previous quarter despite the fact that mortgage rates were above 7% for almost the entire quarter.

❱ I don’t expect prices to move far from current levels in the coming months, and they likely won’t rise again until mortgage rates start to fall. When prices do rise, I anticipate that the pace of growth will be far more modest than we have become accustomed to.

Mortgage Rates

Mortgage rates continued trending higher in the third quarter of 2023 and are now at levels we have not seen since the fall of 2000. Mortgage rates are tied to the interest rate (yield) on 10-year treasuries, and they move in the opposite direction of the economy. Unfortunately for mortgage rates, the economy remains relatively buoyant, and though inflation is down significantly from its high, it is still elevated. These major factors and many minor ones are pushing Treasury yields higher, which is pushing mortgage rates up. Given the current position of the Federal Reserve, which intends to keep rates “higher for longer,” it is unlikely that home buyers will get much reprieve when it comes to borrowing costs any time soon.

With such a persistently positive economy, I have had to revise my forecast yet again. I now believe rates will hold at current levels before starting to trend down in the spring of next year.

Western Washington Days on Market

❱ It took an average of 32 days for homes to sell in the third quarter of 2023. This was 8 more days than in the same quarter of 2022, but 3 fewer days compared to the second quarter of this year.

❱ Snohomish and King counties were the tightest markets in Western Washington, with homes taking an average of only 19 days to find a buyer. Homes for sale in San Juan County took the longest time to find a buyer (57 days).

❱ All counties except Snohomish saw average days on market rise from the same period in 2022. Market time fell in 9 of the 14 counties compared to the prior quarter.

❱ The greatest fall in market time compared to the second quarter was in San Juan County, where market time fell 23 days.

Windermere Chief Economist Matthew Gardner gives an updated analysis of the U.S. housing market in 2023, using data released by The National Association of REALTORS® on listing activity, home sales, price growth, and more.

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.

U.S. Housing Market 2023

Hello there, I’m Windermere Real Estate’s Chief Economist Matthew Gardner and welcome to this month’s episode of Monday with Matthew. The National Association of REALTORS® released their data on the U.S. housing market in August, and it contained a few things which I found interesting and wanted to share with you.

• U.S. Housing Market 2023: Home Prices, Demographics, and More

Listing Activity

As you can clearly see here, the number of homes for sale remains at close to historic lows. When adjusted for seasonality, there were just 1.03 million single-family and condominium homes for sale in the month of August, and that’s down 8.3% from a year ago and the second lowest level in 2023. When adjusted for seasonal variations, there were just over 911,000 single-family homes for sale in the month, that’s 15% lower than a year ago and 36% below August of 2019. And the condominium market is not faring any better with just over 123,000 units available for purchase, listing activity was down year-over-year by just over 9%.

Homes for Sale August 2023

And to give you a little different perspective, this chart shows you the total number of units for sale in the month of August going back more than 20 years and I think it gives a pretty good indication as to how tight the U.S. housing market really is.

Now, we’ve talked before about the reasons why supply is so limited, and the blame is almost totally attributable to mortgage rates with sellers remarkably reluctant to move because that would mean losing the historically low mortgage rate that they currently benefit from. And as the old saying goes, “you can’t buy what’s not for sale,” and this is certainly true in the housing market today.

U.S. Housing Market 2023: Sales Activity

With such limited choice in the marketplace, it’s unsurprising to see home sales having plummeted following the pandemic induced surge we saw in 2021. At an annual sales rate of 4.04 million units, that is only 40,000 more than the low seen this January and we are now holding at levels we haven’t seen since 2010. Interestingly, single-family sales did see a little jump at the start of this year, but they have since pulled back—likely a function of rising financing costs, which were getting close to 7% in June.

But the condominium market, while certainly down significantly, appears to be somewhat more resilient. I find this interesting as we have not seen any palpable increase in listing activity for multifamily units.

Home Sale Prices Off All-Time High

When prices started to fall in the summer of 2022, many expected to see them continue to plunge in a manner similar to that seen following 2007 collapse, but that has certainly not been the case. Sale prices have rebounded and remain remarkably resilient—especially given significantly higher financing costs.

• Although we did see a small drop in home prices between June and July of this year, U.S. home prices are only 1.6% below their 2022 peak; they’re up 3.9% year over year; and up by 11.1% from the start of 2023.

Single-family home prices paint a similar picture with prices down by 1.8% from peak; but up 3.7% year over year, and up 11.2% from the start of the year. Interestingly, sale prices in the Northeast were actually 3.5% higher in August than their 2022 peak. And condominium prices are just 0.1% below the high seen in June of last year. Prices are now up 6.2% year over year and are 11.6% higher than we saw at the end of 2022.

Now, of course the data shown here is unlikely to reflect the recent surge in mortgage rates so it will be interesting to see what impact that has not just on sales but sale prices when the September and October data is published.

My intuition suggests that—even with mortgage rates where they are today—as long as they don’t move significantly higher, prices at the national level are unlikely to collapse. But I do see sales volumes pulling back further as listing activity remains very constrained.

Price Growth vs Payment Growth

This chart shows a different way to look at the impact that mortgage rates are having on the market. The dark blue line shows year-over-year home price growth, and the light blue line shows the 12-month change in average mortgage payments.

Although we did see that annual growth in mortgage payments fall to just 10% in June of this year—the first time we have seen that since 2021—it has subsequently jumped back up. This means that a buyer of a median priced house in the U.S. is faced with payments that are 26 and a half percent higher than they were 12 months ago. At the same time, home price growth has stalled.

As I’ve mentioned in several past videos, I find it unlikely that inventory levels will increase significantly in 2023, and I also believe that supply will be constrained next year as well as rates remain at elevated levels.

As we know, it is this lack of inventory that has helped to support home prices; however, there is a breaking point. 10-year bond yields are holding at multi-year highs and do not appear to be thinking of pulling back at any time soon—especially given new bond issuances that the country is going bring to market in order to address our burgeoning debt levels.

And it’s because of this that I now expect to see rates remaining higher for longer, and the question then becomes how much tolerance will buyers have if mortgage rates hold where they are today or if they head closer to 8%.

Although I am not expecting this to happen, it is possible. And if it does, then sales will fall further and the underpinning of price stability will certainly be eroded. And there you have it. As always, I’d love to hear your thoughts on this subject so feel free to leave your comments below. Until next month, stay safe out there and I’ll see you soon. Bye now.

To see the latest housing data for your area, visit our quarterly Market Updates page.

About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.