The Washington real estate market has been one of the hottest state-wide housing markets in the country for the better part of three years. Real estate in Washington outperformed many of its counterparts on a national level in several metrics. While the trend is expected to continue, however, the pace at which the Washington real estate market operates will temper. The Fed’s decision to combat inflation by hiking interest rates has already reduced mortgage application volume, and it should continue doing so for the foreseeable future. Less activity will ultimately shift some power away from today’s sellers, which begs the question: Is Washington State a good place to invest in real estate?
Washington has been, and will continue to be, a great place to invest in real estate. If for nothing else, there’s always money to be made where there is demand. While some residents have sought cheaper living situations in other states, Washington’s tech-centric economy will continue to increase net migration. With an already low level of inventory, supply and demand will lean in favor of local investors, whether they are renting out units or flipping properties.
The Top Washington Real Estate Markets
While the best real estate market in Washington is up for debate, here’s a list of the cities investors may want to pay special considerations to:
Median Sale Price: $589,600 (+4.6% year over year)
Number Of Homes Sold: 8,084 (-36.8% year over year)
Median Days On Market: 26 (+15 year over year)
Number Of Homes For Sale: 27,371 (+15.7% year over year)
Newly Listed Homes: 7,934 (-30.0% year over year)
Months Of Supply: 2 (+1 year over year)
Homes Sold Above List Price: 23.8% (-28.3 points year over year)
Homes With Price Drops: 45.5% (-16.5 points year over year)
Sale-To-List Price: 98.7% (-3.7 points year over year_
Median Rent Price (1 & 2 Bedroom Units): $1,597 (+5.2% year over year)
Unemployment Rate: 3.8% (latest estimate by the Bureau Of Labor Statistics)
Population: 7,705,281 (latest estimate by the U.S. Census Bureau)
Median Household Income: $77,006 (latest estimate by the U.S. Census Bureau)
Foreclosure Rate: 1 in every 10,038 households
Washington Median Home Prices
The median home value in the Washington real estate market is about $610,121. On its way to its current price point, the median home value in Washington increased for ten consecutive years, jumping 131.5%. It should be noted, however, that the greatest rate of appreciation has taken place over the last three years, increasing 44.5% since the first quarter of 2020. The rapid rate of appreciation was brought about by supply and demand constraints caused by the pandemic and the Fed’s subsequent reactions. For added context, the median home value in the United States rose 41.3% since the beginning of COVID-19.
Home values in the Washington real estate market have appreciated faster than the majority of their national counterparts for quite some time. However, the Fed’s decision to tighten on the economy by raising interest rates has had an impact on every market. Even Washington hasn’t been able to escape the lack of activity onset by higher mortgage rates. As a result, homes are still appreciating, but at a much slower pace than residents have grown accustomed to.
Sellers are starting to lose their grip on the market, as 45.5% of the homes in Washington have exercised price drops, up 16.5 points year over year. As fewer buyers participate in the market due to higher home prices and mortgage rates, sellers no longer have the power to increase asking prices like they did in the past.
To be perfectly clear, prices are expected to continue rising. With a mere two months of inventory, the Washington real estate market doesn’t have nearly enough homes to keep up with demand. However, less demand will slow appreciation rates down in the future.
Washington Median Rent Prices
As part of an entire housing sector cooldown, rents have joined their home price counterparts on a downward slide. Closely correlated to home prices, the lack of activity in the hosing market has resulted in the second straight month-over-month decline, and the largest single month dip since at least 2017. In addition to the national drop in rents, however, seasonal changes have contributed to the latest decline in rental asking prices. As the market descends deeper into winter, rents should continue dropping, and the Washington real estate market is no exception.
Following the seasonal drop in rental rates, the average rent for a one and two bedroom unit in Washington is now about $1,597. Today’s rental rate is up about 5.2% year-over-year, but showing signs of weakening, along with the entire industry. For context, the median rent in the United States is somewhere in the neighborhood of $1,371, up 5.7% year-over-year.
Rents in the Washington real estate market should weaken into year’s end, but warmer weather in 2023 and more housing activity in the spring should prop price up. As long as inventory remains tight, in fact, rents in Washington should increase, albeit at a slower rate in than in previous years.
Washington Foreclosure Trends & Statistics
Foreclosures are on the rise across the entire country. While the pandemic helped suppress the number of foreclosure filings over the last few years, the expiration of government aid is starting to show. According to ATTOM Data Solutions’ Q3 2022 U.S. Foreclosure Market Report, “there were a total of 92,634 U.S. properties with foreclosure filings — default notices, scheduled auctions or bank repossessions — up 3 percent from the previous quarter and 104 percent from a year ago.”
As recently as September, national foreclosures filings were up 62.0% year-over-year. Despite the increase, however, foreclosures have yet to reach their pre-pandemic levels.
“Foreclosure starts, while rising since the end of the government’s foreclosure moratorium, still lag behind pre-pandemic levels,” said Rick Sharga, executive vice president of market intelligence for ATTOM. “Foreclosure activity is reflecting other aspects of the economy, as unemployment rates continue to be historically low, and mortgage delinquency rates are lower than they were before the COVID-19 outbreak.”
Foreclosures are rising across the country, and the Washington real estate market is no exception. While Washington had the forty-third lowest number of foreclosure filings in the third quarter, the state saw a total of 857 homes fall into delinquency; that’s up 26.4% from the previous quarter and 55.8% from the same period one year ago. Following the increase, about one in every 10,038 households is considered to be in a state of foreclosure. The counties with the highest distributions of foreclosures were Lewis, Douglas, Skagit, Cowlitz, and Lincoln.
In the future, foreclosures are expected to continue rising. The lack of government aid and the looming threat of a recession increase the likelihood of more homes falling into delinquency. While it is still too soon to tell how many homes will file for foreclosure in the coming months and years, it is growing more likely the number will increase year-over-year. As a result, Washington real estate investors may start to see more foreclosures hit the market over the next 12 months.
Tax Lien Investing
Tax Lien or Deed: Tax Deed state
Redemption Period: None after sale
Washington Real Estate Investing
Appreciation trends have favored investors for years, dating back to the bottom of The Great Recession. With more than ten consecutive years of appreciation, almost all long-term holds have appreciated at an historic rate. That said, the Washington real estate market (much like everywhere else) has gotten prohibitively expensive. Homes have increased in value so much that attractive profit margins are growing harder to come by.
Outside of acquiring a foreclosure, homes are growing too expensive to flip. That's not to say Washington real estate investors can't continue to flip homes (they absolutely can), but rather that today’s market is more suited for long-term investors. Rental property owners, in particular, have found the combination of today’s interest rates and affordability to lean in favor of landlords.
While mortgage rates have nearly doubled, year-to-date, borrowing costs can still work in favor of investors looking to buy a rental property. As recently as November, the monthly average commitment rate on a 30-year fixed-rate mortgage was 6.61%, according to Freddie Mac. At that rate, it's still affordable to borrow money. The rates associated with today's purchases will keep monthly mortgage obligations affordable, especially when compared to the rental income a lease can bring in. Investors who use today's rates may increase monthly cash flow and increase profit margins on long-term rental properties.
Today's landlords will also find their assets receiving plenty of attention. The city's distinct lack of inventory means more people will be forced to rent (even those who want to buy will be relegated to the renter pool). Demand for rental properties should increase for the foreseeable future, simultaneously lowering the risk of vacancy and increasing the amount of rent landlords may charge.
Investors are lucky to have several viable exit strategies at their disposal, but none appear more attractive than building a proper rental property portfolio in the wake of the pandemic. Too many important market indicators are pointing toward becoming a buy-and-hold investor in Washington to ignore.
Washington Housing Market Predictions
The Washington housing market has done very well for itself in the last ten years. For the better part of a decade, real estate in Washington has exhibited many of the same characteristics as its national counterparts. Today, well into an inflationary economy, trends are starting to take shape. With all that has happened over the last few years, it's growing easier to assume the following predictions will come to fruition in the Washington housing market:
Secondary cities will receive more attention: Seattle has seen demand increase dramatically in recent history. In doing so, prices have increased alongside the competition. It is now fair to assume secondary cities like Tacoma will start receiving more attention. Appreciation in smaller cities has yet to reach the same level as Seattle, attracting many first-time buyers. Cheaper home values will then drive up competition in areas where it wasn't before.
Historic appreciation will continue: Real estate in Washington remains red hot, despite higher mortgage rates. As it turns out, pent-up demand was enough to maintain an active housing sector. However, there aren't enough listings to keep up with demand. As a result, sellers will increase asking prices to line up with the competition.
The Coronavirus impacted the Washington real estate market, but not in the way many would have assumed. In the first quarter of 2020, local real estate experienced a setback, but it was only temporary. Fear and uncertainty stalled the market for a little while, but the market persisted. In fact, the Coronavirus actually catalyzed a historic run in real estate. Thanks to a lot of help from low interest rates, buying activity lifted the entire sector. The momentum generated over the course of the last few years looks entirely capable of continuing well into next year.
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