Mortgage Rates and 1031 Equity
Historically, the most important factor for home value trends is directly related to mortgage rate direction trends. Falling rates and mortgage payments make homes more affordable for a larger number of buyers. Conversely, rising rates make it more challenging to qualify to purchase properties.
Mortgage rates today are just moving back towards historical trends. For example, the average 30-year fixed mortgage rate over the period of 51 years between April 1971 and September 2022 was 7.76%, as per the Federal Reserve. The Fed may start cutting rates again in 2023 after pushing rates so quickly in 2022. If so, real estate price gains might rise yet again at near record paces like seen over the past 10 years.
In January 2023, the conforming loan limits for loans funded and sold off to Fannie Mae and Freddie Mac in the secondary market are rising yet again. This is good news for our state as large loan amount allowances up to 97% of the purchase can make it easier for more buyers to purchase properties.
The conforming loan amount changes increased from the single-family conforming loan amount limit of $647,200 in 2022 to $726,200 in 2023 for a one unit property (single-family home, condominium, townhome, etc.). The two-unit or duplex loan limit rises to $929,850; the three-unit or triplex loan limit increases to $1,123,900; and the four-unit or fourplex loan limit reaches $1,396,800.
For the more expensive high-cost conforming loan limit regions found in King, Pierce, and Snohomish counties, the 2023 loan limits are much higher as follows:
Buyers with cash or equity rolls from 1031 tax-deferred exchanges may not need a very large mortgage to purchase a new rental property or properties. As such, the rising mortgage rates have much less of an impact on them than they would for first-time home buyers who are seeking a highly-leveraged VA, FHA, or conforming mortgage with loan-to-value (LTV) ranges that may vary between 97% and 100% of the purchase price.
Many of our investors use 1031 tax-deferred exchanges to roll their profits from the sale of one property into one or more other properties. The key is to sell at the price peak for the market and let our Sterling Johnston Real Estate team members find you the best bargains to exchange into shortly thereafter.
Investors and homebuyers are relying upon a higher number of real estate licensees to guide them through the ever-changing rate cycles and housing market trends. With less competition from other buyers partly due to rising mortgage rates, now is the time for both first-time buyers and experienced investors to enter the market.
Real Estate in 2022 – A Review of the Year
Homes in the Seattle region appreciated 137.11% over the past 10 years, as per NeighborhoodScout.com. This is equal to an average annual gain of 9.02%. This puts the Seattle region in the Top 10% nationally for home price appreciation.
Between the second quarter of 2021 and the second quarter of 2022, the Seattle appreciation rate was 12.16%. Over the period of 15 months between the first quarter of 2021 and the second quarter of 2022, home prices in Seattle rose at a much higher 18.58% annual pace.
Obviously, these record price gains can’t continue at double-digit gains each year. Based upon historical trends, homes rose in value at or above the published annual CPI (Consumer Price Index) rate which is more like 3% or so each year. Real estate has proven to be an exceptional hedge against inflation because it floats like a buoy that rises with inflation trends. Any talk of a “cooling” for real estate is more like talk about the appreciation gains possibly becoming more normal as seen in years past.
The Median Home Sold price of $819,717 rose +9.4% for King County between November 2021 and November 2022. This was equivalent to an average equity gain of $70,611 over just one year. The average selling price per square foot was $508.
The S&P/Case-Shiller Index for the King, Pierce, and Snohomish county regions shows a higher +9.87% year-over-year home price gain through October 2022 for single-family homes. The NWMLS report for October 2022 lists a fairly balanced 6,435 pending transactions and almost an identical 6,464 closed home sales transactions.
The median price for single-family homes and condominiums together as of October 2022 was as reported as follows:
Migration Trends for Washington
The four-county region of Puget Sound (King, Snohomish, Pierce, and Kitsap) and other counties around Washington continue to attract new residents from across that nation and world. This is partly due to high-paying jobs associated with Microsoft, Amazon, Google, and Boeing.
A recent study conducted by a moving company database named moveBuddha found that the exact same three states were involved in both inflow and outflow for resident movements. Washington residents moved out of state to these Top 3 states which included California (13.8%), Texas (11.9%), and Florida (8.71%). At the same time, these three states were the Top 3 for new residents who moved to Washington as follows: California (25.91%), Texas (10.41%), and Florida (4.73%).
Supply Trends for Listings
We’re still seeing home listing numbers that are well below historical trends. In fact, the current supply of home listings for the Puget Sound four-county region averages near just two months and is broken down as follows: King County (2 months), Pierce County (1.99 months), Kitsap County (1.98 months), and Snohomish County (1.83 months).
Unsold Housing Listing Inventory in King County
Current unsold listing inventories are still below the 5-year historical average in King County. When the buyer demand exceeds the available supply for real estate, consumer goods, or other services, then prices tend to rise. Let’s take a look below at some of the unsold housing inventory numbers:
Sources: Realtor.com and the St. Louis Fed
Investors and homebuyers are relying upon a higher number of real estate licensees to guide them through the ever-changing rate cycles and housing market trends. With less competition from other buyers partly due to rising mortgage rates, now is the time for both first-time buyers and experienced investors to enter the market.
Reach out to the Sterling Investor Group to review your portfolio and prepare for 2023!