‘Still nowhere near enough.’ What too few houses on the market means for Tri-Cities
After two years of soaring home prices and listings moving faster than buyers could keep up, the Tri-Cities real estate market is starting to level out and inventory is at a five-year high.
The last time there were more than 700 houses on the market was 2017. So what does that mean for the local housing market?
Coming off a record two-year run means home sales next year aren’t likely to hit the historic high prices seen earlier this year or the numbers sold in late 2020 and early 2021, but Tri-Cities real estate experts say that’s no reason to worry.
Where the national real estate market is likely to take a hit, they predict the Tri-Cities will level out making it more appealing and accessible for buyers, but not too much at the expense of sellers.
It’s important for market watchers to remember that after record highs and lows, a return to normalcy can look like drastic changes if the context isn’t included.
For example, the median home sale price in the Tri-Cities is down $50,000 after hitting a peak that lasted through the summer. That might look bad on a chart that only goes back to the beginning of the year, however the current prices are still up more than $100,000 from two years ago.
Buying blitz
Home buying early in the pandemic reached historic levels with the cost of homes shooting up because inventory dwindled.
Tri-Cities buyers were snapping up virtually everything that hit the market, with many sales turning into furious bidding wars.
There were fewer than 160 homes on the market in the entire Tri-Cities metro area in March 2021. Those factors drove home values up at a record pace, reaching 20% higher than the year before in most markets.
At the beginning of 2020 median home sale prices in the Tri-Cities were hovering around $300,000.
In just two years, thanks to a pandemic buying surge, home values surged by $150,000, reaching a peak of $449,500 in February 2022.
Prices then began easing after summer because of growing recession fears, inflation and climbing interest rates.
The Federal Reserve raised interest rates again this week, marking the seventh time they’ve done so in 2022.
In November, Tri-Cities median home prices dropped back below $400,000.
Year over year, the median price was up by only $2,000 in November, down almost $60,000 from the peaks seen earlier this year.
Tri-City Association of Realtors President Ron Almberg said that one of the only constants in the real estate market is that it’s constantly changing.
“It’s kind of crazy because we’re coming out of two years with COVID. When we went in everyone thought things were falling apart and then three months in it’s like someone threw gas on the fire and we couldn’t keep up,” Almberg said.
“Now the market has come to a screeching halt almost. Buyers are still buying, just not as many out there,” he said. “For people who have been around awhile, this is not anything new, we’ve been here before.”
Because of the national slowdown in buying, Tri-Cities house hunters are a bit more hesitant despite the local market inching closer to healthier inventory levels.
That means relief for buyers who weren’t likely to get their first choice or, in some cases, even a home in their preferred price range at all.
Housing inventory crunch
Still, the number of homes available for sale in the Tri-Cities remains well below what experts would considered a balanced market, where buyers and sellers are on even footing.
Realtor David Retter, of Sothesby International Realty, said to achieve that balance, the Tri-Cities would need about 1,200 homes on the market.
At the rate the Tri-Cities is growing though, that’s not likely to happen anytime soon. With more than 600 homes available for the first time since 2017, Retter said it should go a long way toward a healthier, more sustainable appreciation rate in the coming year.
“Back in the day we used to have 1,100 homes for sale and that was with the population at half of where it was today,” Retter said.
Almberg said that even if you include homes currently being built, inventory still doesn’t reach that level.
“The No. 1 problem we have is we do not have enough homes on the market, as long as that stays low I think that will keep values stable,” Almberg said. “If you add in the to-be built, we have a little over 800 homes on the market. That’s from Prosser to Burbank. It’s still nowhere near enough. That’s a problem nationwide.”
Almberg said the National Association of Realtors estimates the national housing market is about 3 million homes behind the current demands of the market.
Good time to buy
Right now, the Tri-Cities is in a spot that has advantages for both buyers and sellers. A manageable, but low inventory means buyers have more power to negotiate, but home values stay steady.
“I think that for buyers, right now what they need to be doing is talking to their lenders, maybe even shopping around,” Almberg said. “Buyers now are in a position to where they can ask for help with closing costs, whereas even six months ago good luck asking about closing or even home inspections.”
Retter said the Tri-Cities buyers are also lucky enough to have lower interest rates than national averages, which were above 7% at the end of October. Currently interest rates in the Tri-Cities are under 6%.
He doesn’t think interest rates are likely to drop back to lows in the 3% range without another disaster or pandemic, so this is a good time to buy.
While some experts are warning of a possible recession impacting housing markets in 2023, the Tri-Cities market has always been fairly well insulated.
After the 2008 housing crisis when many major metro areas, including in Washington state, saw prices crash, the Tri-Cities just saw home prices hold even for a few years. It took six years for Seattle to recover to pre-2008 prices.
Rather than expecting prices to drop in the Tri-Cities, buyers and sellers should look for the market to normalize.
That means homeowners here probably won’t have to worry about losing that once-in-a-generation jump in the value of their home.
Looking to 2023
“The first of the year should be exciting, I think people will get back in the mood to want to (consider buying),” Retter said. “When you look at the demands and the economy, we’re in a similar position to 2008-10 where the rest of the nation was in a recession, but we stayed steady.”
He’s predicting another strong year of home sales for 2023.
Retter said that while the market in the Tri-Cities has certainly seen a slowdown as interest rates climbed, it’s going to lead to a healthier market. He said that rapidly rising home costs, coupled with interest rates doubling nationally was enough to make some potential buyers hesitant.
“I think we’re going to have a steady year,” Retter said. “There’s nothing wrong with us getting back to 3 to 5% appreciation. Ten to 20%, that’s not healthy, that’s not normal.”
He said it’s still a good time to be a buyer, even if the days of bidding wars are behind us.
Even now, the average days a home is on the market in the Tri-Cities is still less than a month.
“Sellers should understand that there is a little more competition than what we’ve had in the past and when you do decide to sell your home, make it as presentable as you can,” Retter said. “Know you are competing and be a little more patient.”
For potential homebuyers who balked at the overvaluations and bidding wars at the height of the pandemic buying spree, 2023 could be the perfect time to venture into the market.
