Tri-Cities housing market returning to ‘normal’? Interest rates pulling buyers back in

Population growth and new jobs may propel the Tri-Cities economy, but they were no match for interest rates that doubled in two years.

Tri-Citians built and bought fewer homes in 2023 as mortgage interest rates topped 7%, according to year-end statistics released this week.

The market may have chilled, but don’t call it chilly, real estate executives say.

Lola Franklin, CEO of the Tri-City Association of Realtors, said 2023 was painful because buyers and sellers grew accustomed to lower rates during the pandemic. But even at 7.5%, mortgage rates are below the 50-year average of 7.75%.

“The market now more closely resembles what we’re used to seeing as ‘normal,’” she told the Tri-City Herald.

The Realtors association tracked 3,223 sales of new and existing homes last year, at an average price of $452,000 and a median of $420,000.

The sales pace was 25% below the 4,300 homes that sell in an average year in the Tri-Cities, based on numbers going back to 2018.

The slowdown offers buyers one advantage: The year ended with about 700 homes on the market, the highest number since 2014. That year there were 900.

Realtors consider 1,200 a healthy number. That hasn’t happened since 2012.

Dennis Gisi, owner/broker for the John L. Scott Tri-Cities, agrees the higher interest rates are closer to their historic norms. Buyers have had to adjust to the new reality.

“We have a generation that thinks the sky is falling when interest rates hit 5-6%,” he said. “I think there was definitely an adjustment rate for people who weren’t used to that kind of economic impact.”

Gisi said 2023 started off weak but picked up during the summer. It finished strong, particularly in December, after the Federal Reserve left interest rates alone and mortgage rates dropped into the 6% range. In his shop, the overall sales volume was down 8% for the year, and he isn’t complaining.

“I’m pretty proud that we were down about 8% for a market that started out terrible,” he said.

Dave Retter, owner of Retter & Co. | Sotheby’s International Realty, confirmed closings were down compared to 2022 and that prices softened a bit.

He too saw a surge in December, as pent-up demand led buyers to make offers.

His office had its busiest week of his 44-year career at Christmas. And 2024 is off to a strong start too, with 66 homes going under contract in the first 11 days, compared to 54 a year earlier.

“I don’t know what any of this means , but we have activity. Phones are ringing. People are walking in. I’m excited,” he said.

New construction slows

Home building was another casualty of rising interest rates. It slowed in 2023, but Jeff Losey, executive director of Home Builders Association of Tri-Cities, expects it to pick up by the fourth quarter of 2024. HBA released its annual year-end building report this week.

It shows builders secured permits for nearly 1,000 single-family homes in Benton and Franklin counties and in the cities of Kennewick, Pasco, Richland, West Richland, Benton City, Prosser and Connell.

Connell is new to the list in 2023, with six homes authorized. Its inclusion acknowledges that builders are increasingly turning to communities outside of the Tri-Cities.

Collectively, new home starts were 30% below the 1,430 homes builders began on average each year in the Tri-Cities, going back to 2018. Home construction peaked in 2020 with 1,722 homes permitted.

Losey anticipates 2024 will be comparable to last year in numbers, with activity rising toward the end of the year if interest rates continue to drop.

“It’s still not a great market for builders. They don’t want too much inventory,” he said.

‘Soft landing’

There is cause for optimism: The Federal Reserve left the prime rate alone in December.

Economists predict it is done raising rates and could even approve a cut as early as June. The theory is that the feds will back off as inflation eases and the economy enters what is being called a “soft landing.”

“It’s going to be a ‘Steady Eddy’ kind of year,” Losey said.

Of the major cities, Kennewick alone maintained consistent building levels. It even beat its six-year average last year, with 290 homes permitted.

“Kennewick has done a really good job of creating an environment to process permits,” he said, noting that development at Southridge — generally the area on the south side of Thompson Hill — has several active developers and a mix of price ranges.

Evelyn Lusignan, the city’s spokeswoman, confirmed home building is a priority. Kennewick wants to be builders’ first choice.

The Southridge area is the most significant outlet, driven the investment in building the Bob Olsen Parkway in 2017 and more recently, completing the Ridgeline/Highway 395 interchange to improve access

Losey, of the HBA, said Richland’s Badger South and Pasco’s Road 100 area will continue to be development hot-spots.

Activity by city

• Kennewick approved 290 home permits in 2023, or 3% more than its six-year average of 281. Kennewick activity peaked in 2019 at 342 single-family permits.

• Pasco approved 251 permits, 38% below its six-year average of about 404. Pasco activity peaked in 2019 at 585 single-family permits..

• Richland approved 219 permits, 33% below its six-year average of 329. Richland activity peaked in 2021 at 407 single-family permits.

• West Richland approved 51 permits, or 64% below its six-year average of 141. West Richland activity peaked in 2021 at 257 single-family homes.

Buy now or wait?

Buyers shouldn’t wait for interest rates to fall or bet that home prices will drop by a significant amount, real estate leaders say.

Gisi of John L. Scott said lower interest rates drive up home prices, erasing many of the advantages they bring. And he isn’t betting that home prices will fall, noting that the local economy is gaining jobs even without a significant increase in homes for sale.

Closing prices are typically within 2-3% of the asking price, he said.

And lower interest rates drive up prices. His advice: People who are ready to own homes should buy.

Franklin, of the Realtors association, said the market means everyone has to work a bit harder than in the heady days when homes sold within days.

She advises buyers to be ready to act when they find the right purchase. That means working with a lender so they can make an offer.

She counsels sellers to work with real estate agents to ensure their homes are priced properly, and ready to sell. that means cleaning, staging and even moving out.

Listing agents can’t just wait for offers to roll in, she said.

“Realtors – don’t list and expect to make a sale over a weekend or in a couple of days. Do what you’ve been trained to do and do it well – buyers and sellers need you now more than ever,” she said.

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