it’s the economy, right? or is it? Rising interest rates brought on by persistently high inflation have dampened housing demand in King County, but a strong labor market has constrained supply, yielding relatively balanced market conditions.
To wit, the national unemployment rate has remained below 4% since March, most recently at 3.8% in August. In the Seattle Metro Area, the unemployment rate has remained below 4% since last October, though it has trended upward of late to 3.0% most recently (in July). The historically- robust relationship between the region’s unemployment rate and MLS inventory has continued to hold through 2022, with our well-functioning labor market being accompanied by a total listings count that declined by 10% from July to August, to 5,181—29% below the past 10-year August average. With the Federal Reserve poised to further raise rates to return inflation to its desired target of 2%, the nature of current and would- be borrowers’ participation in the housing market will continue to be impacted. That said, given the connection between the level of housing supply, overall housing market conditions, and the labor market, it’s the latter that we’ll be keeping a particular eye on.
As summer comes to a close and we transition into the fall—a somewhat ironic name for a season during which we’ll likely continue experiencing high inflation and rising interest rates—we are facing much different economic conditions today here in King County than we were as recently as the spring. In turn, the evolving economic landscape is having a direct impact on our local housing market in both direct and indirect ways. High inflation has been a phenomenon both here in the US and around the world since the early part of 2021, driven by elevated consumer demand, disrupted supply chains, China’s continued enforcement of its zero- Covid policy, and the war in Ukraine. More specifically, year-over-year consumer price changes have exceeded the Federal Reserve’s target of 2% since April of last year, peaking at 9.1% in June 2022 before easing to 8.3% in July. Predictably, this has spurred the Fed to hike interest rates in response having raised its Federal Funds Benchmark Rate
four times to-date in 2022; this has brought its policy rate up into the range of 2.25-2.5%. While the dramatic and rapid increase in borrowing costs has had a significant impact on some households—including parts of the first-time home buyer, mortgage renewer, and variable-rate mortgage holder groups— its biggest impact has been to gum-up the demand side of the market. This is seen in depressed sales counts, with the 2,758 MLS sales in King County in August sitting 28% below last August’s level and 16% below the past 10-year August average. Notably, more-expensive money has not had wide-ranging impacts on the housing market to-date vis-a-vis elevated supply; in large part, this has been due to the state of our labor market. To put it simply, when people who want to work are working, listings remain at or below the long-run average; when people aren’t working and earning an income, supply tends to swell as some homeowners can’t afford their mortgages.
Copyright © 2022 rennie group of companies. All rights reserved. This material may not be reproduced or distributed, in whole or in part, without the prior written permission of the rennie group of companies. Current as of September 14 2022. All data from Real Estate Board of Greater Vancouver and Fraser Valley & Rennie. While the information and data contained herein has been obtained from sources deemed reliable, accuracy cannot be guaranteed. rennie group of companies does not assume responsibility or liability for any inaccuracies. The recipient of the information should take steps as the recipient may deem necessary to verify the information prior to placing any reliance upon the information. The information contained within this report should not be used as an opinion of value, such opinions should and can be obtained from a rennie and associates advisor. All information is subject to change and any property may be withdrawn from the market at any time without notice or obligation to the recipient from rennie group of companies. E.&O.E. 3
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