With so many major companies that make technology and widespread industry domination part of their business, it’s no surprise that the Seattle housing market has earned the reputation of a high-priced place to live.
Changes to the economy, however, may have Seattle singing a slightly different tune when it comes to housing prices and availability in 2023.
Using information from the U.S. News Housing Market Index, we’ve compiled the information you need to get a grasp on the current state of the market. Read on for details of how Seattle’s housing market has changed in the last year and what you can expect in 2023.
How the Seattle Housing Market Changed in 2022
Permits for new construction of single-family homes in 2022 declined significantly compared to 2021 – by 36% year over year as of November 2022, the most recent month available at the time of publication.
Despite some ups and downs, the number of building permits of single-family homes in the Seattle area has been on a rapid downward trend since May 2022, when permits reached their peak of 788. The Seattle metro area approved 1,243 single-family housing permits between September and November 2022, roughly at 35% decline compared to the same time period in 2021.
Individually, there were just 357 permits approved in November 2022, according to the U.S. Census Bureau, below the previous five-year low of 429 permits in April 2020, considered an outlier because it was the first full month impacted by COVID-19 closures in the U.S.
Multifamily housing permits for buildings with at least two units experienced a 17.4% decline year over year in November 2022, but that decline is in large part due to a surge in permit activity toward the close of 2021. January 2022 started with more than 2,140 permitted units, a nearly 50% increase compared to January 2021.
With some fluctuation, multifamily housing permits have trended downward in 2022, with 1,665.33 permits in September 2022, 1,609.33 in October and reaching just 1,591.33 in November. The total for those three months in late 2022, at 4,865.99 units permitted, was just a 5% year-over-year decrease compared to the same time in 2021, which saw more than 5,140 permitted units.
Seattle Housing Supply and Demand
The Seattle market has 1.9 months of housing supply as of November 2022, based on Redfin data, which is lower than the 2.7 months of housing supply for the entire U.S. housing market. This puts Seattle’s housing market squarely in a seller’s market, with few homes on the market compared to demand.
Housing supply in the Seattle market has increased in the last year, however – in November 2021 there was less than 0.4 months of supply, indicating that homes on the market sold almost immediately upon being listed for sale.
The higher levels of supply are largely due to some homes remaining on the market. “Our new listings have fallen off a cliff, meaning our new listings are down and the lowest that we’ve seen in, I think, eight or nine years,” says Michael Orbino, managing broker for Compass in the Seattle metro area and a member of the Seattle King County Realtors association.
Rental vacancies in Seattle are at 5.5% as of November, a 0.6% increase compared to November 2021, based on data from the U.S. Census Bureau.
The Mortgage Bankers Association reports its seasonally adjusted Purchase Index increased 3% as of Jan. 25, 2023, compared with the week prior, indicating an increase in mortgage loan application volume for new mortgages. The unadjusted Purchase Index was 1% below the previous week, and 39% down year over year.
Consumer sentiment in the U.S. News Housing Market Index, based on the Survey of Consumers from the University of Michigan, is also down year over year, showing a 10.6-point decline to 56.8 in November 2022.
Seattle Median Home Price
The median home price for single-family homes in the Seattle market in November 2022 was $730,000, a 2.1% increase year over year, based on Redfin data. Seattle’s housing market is priced far higher than the national median, at just $394,000, itself a 2.9% increase year over year.
The median price doesn’t necessarily tell the whole story, however. Orbino says that high mortgage interest rates have led to less activity than usual on the lower end of the market. Buyers with a higher price range are less likely to feel the sting of a higher mortgage rate, so the share of transactions on the higher end is greater.
“The median price isn’t necessarily down, but I think we are down about 20% from peak,” Orbino says. “There is a lot more transacting going on on the upper end rather than the lower end.”
Seattle’s median rent is also high, at $2,220 as of November 2022, 3.9% above the same month in 2021, based on Zillow data.
While the pace of growth for home prices has slowed, like in much of the U.S., there are a few factors contributing to high home prices and rents. First is the population – there are 1.58 million households in the Seattle metro area, as of December 2021, the most recent data point available based on U.S. Census Bureau information.
Additionally, construction costs in Seattle in November were 19% higher than they were in 2021, with the U.S. Census Bureau’s Construction Cost Index rating the Seattle area at 195.5.
Interest rates in November were also near their peak, with an average of 6.8%, having increased from just over 3% in November 2021.
Unemployment Trends in Seattle
There were more than 2.14 million people employed in the Seattle market as of November 2022, and the unemployment rate was 3.4%, based on Bureau of Labor Statistics data. Unemployment has trended upward slightly since April 2022, when it reached just 2.6%. However, overall unemployment in the Seattle metro area has been declining since the start of the pandemic, when unemployment spiked due to business closures.
Delinquencies and foreclosure activity remain markedly low in the Seattle area as well, based on information from Black Knight Inc. Just 1.5% of mortgages are delinquent in the metro area, and 0.1% have active foreclosure filings.
Compared to the whole of the U.S., Seattle’s unemployment rate is lower than the national unemployment rate, which is 3.7%. While both Seattle and the U.S. as a whole have seen a very slight uptick in unemployed people looking for work, the U.S. did not experience the same dip in unemployment in the first half of 2022 that Seattle did.
Construction jobs in the Seattle market seem to be on the rise, year over year, with 141,900 construction jobs reported in November 2022 – an increase of more than 10,000 since the same month in 2021. The BLS notes a slight decrease in jobs for December 2022, at 139,500, but that’s still well above December 2021’s construction jobs, reported at 129,200.
Seattle Builder Confidence
While construction jobs may be up for work already planned, homebuilder confidence has been low since mortgage interest rates started rising in early 2022. As of December, builder sentiment was at 25 out of 100, a 62-point decline year over year.
Construction for nonresidential buildings may have more volume in the future, based on the Architecture Billings Index from the American Institute of Architects. The Index score is 45.8 for November 2022, which is down from the year’s high in May at 59.3, but up 24.9 points year over year.
In an effort to avoid slashing prices now, Orbino says he’s seeing builders pulling homes still under construction off the market, hoping to re-list when the properties are closer to completion to try to sell. “They are trying to preserve that value,” he says.
Seattle Real Estate Market Predictions
While some factors leading up to present day have been indicators for a strong housing market, like low unemployment and high median home prices, others show apprehension among consumers and the real estate industry, reflecting the nationwide sentiment of backing off real estate activity.
In particular, high mortgage interest rates have decreased demand for new housing, and as a result builder sentiment has been low – and will likely remain low in the coming months in 2023. This data point in particular has lasting effects, as low builder sentiment now leads to fewer permit applications for new construction now and in the coming months, which means fewer new housing units later in the year.
There appears to be room for prices to drop a little. Buyers, sellers and lenders seem to be at a bit of an impasse right now to see who’s willing to give first – buyers are crunched for affordability, sellers expect to sell at ever-higher prices and lenders’ mortgage interest rates remain above 6%. “I do expect prices to cool, but it’s not going to be at the same pace (that they rose),” Orbino says.
The U.S. News Housing Market Index forecasts more than 3,000 new single-family homes receiving permit approval from December 2022 to April 2023, though the forecast has been high compared to reported numbers since summer 2022.
For multifamily housing permits, however, the five-month forecast has been far closer to actual reported numbers over the past year. The forecast now anticipates the number of permitted multifamily housing units to decline through April 2023, reaching just 1,191.8 units in April (the reported November number is 1,591). From December 2022 through April 2023, the forecast predicts a total of nearly 6,819 units approved.