What's driving home prices right now?

The Short Answer: Today’s housing market is short on buyers, not homes. Mortgage rates near 7.3% are keeping people on the sidelines just as more homes come up for sale. Nationally, prices are barely keeping pace with inflation. In parts of the West, Seattle included, they’re already falling.

The National Picture

• Prices are flat after inflation. Home values have fallen in real terms for 14 straight months, with July’s 3.4% inflation running about 1.5 points above the 1.9% annual gain in the national Case-Shiller index;

• Rates are back up. Freddie Mac’s 30-year average reached 7.28% on October 1, its highest level since October 2023;

• Sales are stuck. Existing-home sales ran at a 3.98 million annual pace in August, down 1.2% from a year earlier;

• Supply is no longer the problem. Inventory is up 5.9% from a year ago to 1.62 million homes, or 4.9 months of supply, the most in over a decade. Around 6 months is considered balanced; &

• The East is outperforming the West. Nearly 9 percentage points separated the strongest market, Chicago at +6.9%, from the weakest, Seattle at –1.6%.

  
  

What it Means Here

• King County has tipped into balance. Active listings reached 8,058 in September, up 31% from a year earlier, and months of supply topped 4.5 for the first time in a long time;

  • The core is softening, the edges are holding. The King County median held at $850,000 versus a year ago while and Snohomish fell 0.3% to $720,000, while Pierce rose 2.7% and Kitsap rose 1.6%.

• Fewer homes are selling. King County closed sales dropped 12.2% and pending sales dropped 16.7% year over year.

• Condos are the weak link. The King County condo median fell 6.0% to $496,000, with more than 7 months of supply. That’s a buyer’s market.

• Why Seattle leads the decline: high prices make our buyers more sensitive to rates. Each point on a mortgage costs more here than in Chicago or New York.

  
  

What I’m watching

• Rates. Mortgage rates bottomed at 5.98% at the end of February, the lowest since September 2022. The climb back above 7% explains most of the slowdown. A sustained move below 7% would bring buyers back fast.

• Winter inventory. Listings normally thin out in the fall. If King County stays above 4 months of supply anyway, this is a structural shift, not a seasonal one.

• Price cuts and pulled listings. They’ll show whether sellers are adjusting or simply waiting it out.

• Condos. With 7+ months of supply, this is where a real correction would show first.

• Real losses. Adjusted for inflation, Seattle’s 1.6% nominal decline is closer to a 5% loss over the year.