2023 Seattle Condo Market & How to Navigate Rising Interest Rates
July 4, 2023
Learn about the 2023 Seattle Condo Market, including whether or not now is the right time for you to buy a condo!
“How’s the market these days?” is the first question I hear upon meeting someone and telling them I work in real estate.
And another question I’ve been getting a lot lately is “How’s the condo market in Seattle?”
So, let’s talk about it! In this blog I’m sharing a little history as to why Seattle’s Condo Market is where it is and why we feel it’s time to buy!
The Seattle real estate market has been a hotbed of activity, particularly in the condominium sector, drawing in a mix of residents and investors alike. However, a significant shift loomed beginning in 2020 as the Pandemic and rising interest rates disproportionately impacted the condo market. People were all of a sudden afforded the luxury of working remotely, sometimes wherever they wanted to. Not to mention they were spending way more time at home than they used to, which in turn led to the need for bigger spaces with a home office. People’s needs dynamically changed overnight and the condo sector took a big hit as a result.
Keep reading to explore:
– The unique dynamics of the Seattle condo market
– How the interest rate increase and Pandemic have shaped its trajectory
– Whether we might see an inflection point now in 2023
2023 Seattle Condo Market & How to Navigate Rising Interest Rates
Pre-Rate Increase: An Overview of the Seattle Condo Market
Before discussing everyone’s favorite topic (rising interest rates), let’s first understand the pre-2020 Seattle condo market.
Before 2020, Seattle had been experiencing robust growth, driven by a combination of the strong economy, great employment opportunities, and the city’s overall appeal and highly desirable lifestyle. Condos were sought after across wide demographics, from young professionals to empty nesters and savvy investors. I remember helping a lovely couple get into the cutest little pied-à-terre in downtown Kirkland. It functioned as a home base to stay at when they were visiting their daughter who had recently relocated to Seattle. They resided full-time in Scottsdale and were tired of renting hotels while visiting, not to mention it was a good break away from the desert heat during the summer! Plus, it was a great investment for them!
Now with the benefit of hindsight, we know that condo prices peaked in November 2018, before the Seattle protests and, of course, the Pandemic. At this time, condo’s were at a median price of $510,000 city-wide.
The Impact of COVID-19 on the 2023 Seattle Condo Market
The COVID-19 pandemic significantly impacted Seattle’s condo market, especially condos in Downtown Seattle/SLU. The pandemic initially caused a slowdown as buyers and sellers adopted a more cautious approach due to all the uncertainty at the time. With restrictions on property viewings easing up and buyers gearing their preferences towards larger spaces, the market experienced fluctuations. However, prices remained pretty stable due to limited inventory. As vaccination efforts moved forward and restrictions were lifted, buyer confidence gradually returned, and we saw an increase in activity and renewed interest in urban living, including condos. The condo market bottomed out in June 2020 at around a $455,000 median price.
The Impact of Rising Interest Rates
As interest rates reached 6.5% to 7.1% for conventional loans in 2023, the Seattle condo market has witnessed significant changes.
Higher interest rates affect the affordability of mortgages, leading to increased borrowing costs for potential buyers. This factor alone can dampen demand and create a more cautious atmosphere in the market. This is why we saw such a hysteria of sales during the pandemic; the money was cheaper than ever before. Still, with limited inventory Seattle’s condo market has gained all its losses back and, as of June 2023, condos sit at a median price of $512,000.
Affordability & Buyer Behavior
With higher interest rates, affordability becomes a concern for prospective buyers entering the Seattle condo market. As borrowing costs rise, so do the monthly mortgage payments, making it more challenging for buyers to qualify for loans and purchase properties.
This scenario may prompt some potential buyers to postpone their plans, but should they? Data from the last three months suggest condo prices are on the rise. This is likely due to affordability concerns and buyers being pushed out of the single-family market or townhouse market and with the push for employees to return to work. Condos prices are too low due to years of stagnation for the reasons mentioned above. The interest rates and return to work will benefit condos as a close-to-work, more affordable option for buyers who are tired of renting and paying other people’s mortgages.
Another thing to remember is that as soon as the rates go down, condo prices will go up. Everyone waiting on the sidelines to purchase at a lower rate will feel the weight of heavy competition as buyers re-enter the market to “get a deal,” thus competing for houses and driving the price up. I recommend that my clients purchase with an ARM (adjustable rate mortgage) if they can and then refinance down the line.
Impact on Investors & Market Stability
The projected increase in interest rates can have ramifications for investors in the Seattle condo market. Higher borrowing costs may reduce the overall return on investment, potentially dampening investor enthusiasm. However, if you are a cash investor, take advantage of the flat prices now while you can. Rent has been increasing while condo prices have been flat. Condo prices have already rebounded; I predict we will be far above the peak of late 2018 by next year.
Market Resilience & Long-Term Prospects
While rising interest rates pose challenges for the Seattle condo market in the short term, the city’s strong economic fundamentals and desirability as a place to live may mitigate some of the adverse effects. Inflation’s impact is also coming to an end soon. As the inflation number inches closer to the 2% target, more buyers will enter the market as the perceived risk decreases. Buying now will get you ahead of the crowds, and then you can refinance once the FED rate drops sufficiently.
All in all, Seattle’s condo market is making a comeback. As Seattle’s condo market navigates the impact of rising interest rates in 2024, we must look toward falling interest rates. Buyers will face affordability challenges for now, but that will also be short-lived. Right now, you can take advantage of lower prices before more buyers jump into the market.