January 22, 2023

The 2022 real estate market for Bellingham and Whatcom County was a tale of two halves.

The beginning of the year saw record-low interest rates, low inventory, and a highly competitive market. But by late spring, the federal reserve was steadily raising interest rates…from 3% to 7% in just 5 months. This was very effective in slowing down sales and slowing down the frenzy market. Home prices on closed sales peaked in May and June, as a result from sales from the bidding wars and frenzy activity in March and April. But with rates climbing so rapidly, a summer lull came well into effect.

In the second half of the year, home prices settled and then adjusted back down 5% to 10% from July to December. The rate at which prices have dropped varies in each price range. But generally in most markets of Whatcom County, homes prices are 8% to 10% lower today (January 2023) then at the peak of the market, which the late spring of 2022.

So sales and home prices, both slowly declined throughout the 2nd half of 2022.

Now more recently in December through January of 2023, interest rates have slowly come back down a bit — from the low 7’s, back into the low 6’s. And lenders have been aggressive in creating buydown programs to give buyers rates in the 5’s in most cases. That drop in rates has created a slight surge in sales in mid-January.

So are things already starting to level out?

More on that, but first let’s review the 2022 stats.

Yet year-over-year, home values are still actually up.

In the first half of the year, sales outpaced homes for sale, which is a frenzy market that creates bidding wars and rapidly rising home prices. The second half of the year looked more balanced.

The supply of inventory steadily increased to 3 months. Anything below 3 months is typically still an appreciating market, but interest rates were rising so quickly, home prices still dropped in the second half of the year. 

You can see from 12/21/21, to 12/22/22, the average dollar per square foot, still finished up approximately 6% year-over-year. But from 5/22/22 to 12/22/22, price per square foot dropped approximately 7%.

So where does that leave us now? And what is next?

What appears clear is that home sales (units sold) will be down in 2023. With rates higher and the real estate market in a recession, confidence in the market is down, and many buyers and sellers are waiting things out.

Still, that does not mean home prices will continue to fall. We still have a major shortage of housing (specifically new construction), and interest rates have been slowly trending back down.

The John L Scott housing 2023 forecast lines up with the Fannie Mae forecast, which both expect home prices to level out in 2023 as interest rates come back down. See chart from Fannie Mae noting that the room between the treasury and mortgage rates supports a trend towards interest going down steadily for the next year.

(above) Fannie Mae economic outlook.

Every market is unique, and home prices may still be adjusting in many markets of the country. But for Bellingham and Whatcom County, all signs point to prices leveling out in 2023. That leveling-out period will vary depending on the area and price range. But with just under a 3-month supply, strong demand and lack of supply, we are on solid footing. Our company forecast predicts home prices will appreciate once again in 2023 and beyond.