Forecast sunny for interest rates, partly cloudy for first-time homebuyers

by Seattle Agent

By Mary Prenon

Across the nation, homebuyers have been taking advantage of unprecedented low mortgage rates over the past year, and many mortgage professionals predict the trend will continue into early 2022. The seller’s market that continues to permeate the country is not halting plans of potential buyers looking to cash in on low rates.

Lysa Catlin, branch manager of Summit Funding in Kirkland predicts the mortgage rates will remain under 4% into 2022. “Anywhere under 4% is very good,” Catlin said. “We believe the housing market will stay strong even as we go into next year.”

Catlin and her team have been extremely busy since last year and are already planning to exceed their 2020 production. “Nobody gave you a memo in January of 2020 about the huge influx of refinances or home sales” she quipped. “It’s been a lot of long hours for all of us.”

Named as one of Mortgage Executive Magazine’s top 200 mortgage originators in the country, Catlin leads a team of 13 loan officers. At the start of the pandemic, the team focused on refinance loans, but now about 75% of their business is home purchase loans.

Currently, mortgage interest rates can range from the low- to mid-3% range. A recent Freddie Mac rate came in as low as 2.87%, compared to 2019 when it hovered at about 3.6%. The Mortgage Bankers Association reported an average of 3.4% in the fourth quarter of 2020. “There’s a lot of things that can influence these rates — inflation, COVID, the economy — but I think we’ll still end up somewhere in the mid-3% range at the end of the year,” Catlin added.

Like other major cities throughout the country, Seattle also experienced an exodus of the population to the suburban communities. “Prior to the pandemic, the trend was young couples starting a family to remain close to the city, but now that so many people are still working from home, they want more space and property,” said Catlin. “And if they’re looking for something under $1 million, they’ll definitely have to look to the suburbs.”

Dealing with loan amounts from $200,000 to $2.5 million, the Catlin team also handles home and condo sales in the city, where luxury residences can start at $2 million. “We’ve also seen a lot of people from the Bay area of California, where they can find more value for their money in Seattle,” Catlin explained. International buyers are taking a big interest in the area as well.

Multiple offers continue to be the norm, especially in the suburban market. “If the buyer can present a strong offer, they can sometimes close in 20 days or less,” Catlin added. With home prices continuing to skyrocket, the playing field may become a bit more difficult for first-time homebuyers, she said, noting, “In many cases, people will have to come up with a larger down payment if an appraisal comes in lower than the price after bidding wars.”

Ron Kirse, Seattle district manager of U.S. Bank Home Mortgage, agrees: “Even though the rates are great, first-time homebuyers are struggling because of value,” he said. “Bidding wars are escalating the prices of homes to more than what the house is worth and appraisals are coming in lower. The market is overheated.”

Like Catlin, Kirse predicts rates will continue to stay below 4% through the first quarter of 2022 and maybe beyond. “The feds will have to keep the rates low to keep the economy going,” he reasoned. “I think they will be relatively stable for the time being.”

With more 30 years in the business, Kirse noted it’s hard to believe the days of double- digit interest rates years ago. “I can remember jumping for joy when the rates got down to 9%,” he said. Fast forward to today, and coupled with Seattle’s 24% annual growth, the housing market is red hot. “A lot of segments of the market are doing really well, and people are continuing to buy up houses at a faster rate than they’re coming up for sale.”

According to Kirse, Seattle has only about three weeks of housing inventory. As a result, he and his team of 20 see more first-time homebuyers going further out from the city to find affordable housing. The fact that more people are now working remotely plays to their advantage.

“The most important thing we can do is to let our clients know we are in a very competitive market and that they may have to come up with a larger down payment,” he added. While those who have already sold a home may not be cash-strapped, there are programs available to help first-time homebuyers boost their down payments.

Washington State Bond programs allow first-time homebuyers to borrow up to 4% of the home sale price to use as part of their down payment. The no-interest loan can be paid back when the property value increases. “Our advice to potential new homeowners is to get your foot in the door, and inflation will start working for you, not against you,” added Kirse.

Rachel Adler, managing broker with Windermere/East Inc. in Seattle and Bellevue, often suggests to first-time homebuyers to “dip their toes in the water” with a condo or townhouse purchase before diving in to the overcrowded pool of single-family home ownership. “Condos and townhouses are actually bright spots in this market,” Adler said. “They tend to be less expensive and more plentiful.”

Last year, when many city dwellers headed to the suburbs during the pandemic, the local condo market was struggling, but now, notes Adler, it’s about back to where it was in 2019. One-bedroom condos in the city and suburban areas can still be found for under $400,000, while townhomes with two to three bedrooms are going for about $700,000. “On the high end, you can spend up to $15 million for condos or townhomes, but for a lot of first-time homebuyers, they represent a more affordable alternative,” she added.

Adler’s team of six, RAREnorthwest, has remained busy over the past year, but she cautions that “what goes up must eventually come down.”

“The market does tend to move up a lot faster than it moves down, but I don’t think these bidding wars and escalating home prices are sustainable,” she admitted. “People are paying 20% to 30% over asking prices, and I don’t think we’re going to see that happen two years in a row.”

Pre-pandemic, Adler’s typical advice to first-time homebuyers was to move further out from the city. “However, now that’s where we’re seeing the largest price gains, which leaves some of these people out of the homebuying process,” she said.

The July Northwest MLS July report indicates the median sales price for Seattle was $810,000, up almost 7% from 2020. In north Seattle, the median sales price came in at $915,000, representing a 5% increase over last year. However, on the east side, south of Route 90, the median price skyrocketed to $1.3 million, which is over 48% higher than July of 2020.

The most expensive housing listed on the report was Bellevue, west of 405, with a median price of $1.9 million, while the least expensive area was the Des Moines/Redondo region, with a median price of $530,000.

Next year, the 20-year real estate veteran will be taking over the reigns of the Seattle King County REALTORS as its president, and will continue to advocate for home ownership. As for mortgage interest rates, Adler agrees with lenders’ predictions of rate stability into 2022. “Every time the interest rates tick up, it kicks more buyers off the fence,” she said.

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