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August Market Review

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The market remains very similar to the results of the first quarter analysis I sent in my last newsletter. Looking at year to date closed residential sales, Whatcom County prices are down slightly from the same period in 2024, and the number of closed sales is slightly up. The changes in the different areas are more significant. Ferndale is up by the most in price increase and number of sales, while Lynden has taken the biggest hit. The results are summarized below:

Area                               Median Price              Closed Sales

Whatcom County          $629,000 (-1.7%)        1,403 (+1.7%)

Bellingham                    $755,000 (-3.2%)           452 (+3.2%)

Sudden Valley               $602,500 (+2.1%)            86 (-5.5%)

Ferndale                        $651,500 (+4.1%)         218 (+17.2%)

Blaine / Birch Bay         $584,259 (-2.6%)           205 (+1.5%)

Lynden                          $644,500 (-4.5%)            94 (-31.9%)

With overall supply and demand being so consistent, I don’t expect much of a change in the coming months unless something changes nationally. Mortgage interest rates have shown a slight decrease so far in 2025, but are still slightly higher than they were in August last year. Economic uncertainties are likely to remain. Many homeowners are still trapped in the “golden handcuffs” of the historically low interest rates they locked into a few years ago, and are unwilling to move and take on a higher rate.

One wild card is President Trump’s proposal last month to end capital gains taxes on home sales. Under current law, owners selling a primary residence face capital gains taxes once profits exceed $250,000 for single filers or $500,000 for married couples filing jointly. Those thresholds were not indexed for inflation and are the same as when they came into effect into 1997, so many more home sellers are subject to taxes given the huge increase in property values since the inception of that rule. Eliminating this tax could encourage a lot of sellers to make a move, dramatically increasing supply and creating a profound change in the market. It is unsure if or when this proposal will face the test of congress. Increasing the thresholds instead of eliminating the tax entirely may be the more likely outcome. Give me a call if you are wondering how this could impact you. I am always happy to chat.

2025 First Quarter Market Review

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Faced with uncertainties over tariffs, recession fears, high consumer prices, and stubborn interest rates, Whatcom County’s real estate market is starting to show some cracks. Comparing closed residential sales (not including condominiums or manufactured homes in parks) for the first four months of 2025 to the same period in 2024, the number of closed sales remained mostly steady, but the median sales price countywide fell by 3.1% to $625,000. Ferndale and Sudden Valley showed some improvement, but the usually strong Bellingham market showed the biggest decline. The results are summarized below:

Area                              Median Price              Closed Sales

Whatcom County          $625,000 (-3.1%)        444 (-0.2%)

Bellingham                    $730,000 (-6.4%)        135 (+5.4%)

Sudden Valley               $590,000 (+6.1%)         32 (+33.3%)

Ferndale                        $634,000 (+2.3%)        76 (+22.5%)

Blaine / Birch Bay         $639,500 (-0.6%)          60 (-15%)

Lynden                          $653,000 (-3.2%)          27 (-55%)

Keep in mind that it’s still early in the year and some of the sample sizes are too small to show dependable trends (especially in the number of sales), but it will be interesting to see how the market fairs over the coming months. Another area of uncertainty is the impeding water rights adjudication for homes served by wells, which I discussed in a previous newsletter. Comparing the same periods, homes on wells decreased by 3.8% to a median price of $760,000. The number of homes sold increased by 48% to 43. This is also a small sample so it’s too early to say for sure what impact the adjudication process will have on prices, but I will be sure to watch this and report as more information comes in. The adjudication documents were mailed out to homeowners mid-March, so this very lengthy legal process has officially begun.

2024 Year in Review

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Despite dual headwinds of stubborn mortgage rates and election uncertainty, the real estate market in Whatcom County remained strong in 2024. Residential sales (not including condominiums or manufactured homes in parks) increased county-wide by 7.6% to a median sales price of $635,000, and Bellingham’s median price jumped by 8.8% to $775,000. All areas saw an increase in sales price, while the number of closed sales remained very similar to 2023. The results are summarized below:

Area                               Median Price              Closed Sales          Days on Market

Whatcom County          $635,000 (+7.6%)        2,278 (+1.6%)          15 (+0.0%)

Bellingham                    $775,000 (+8.8%)           693 (+2.26%)          7 (-12.5%)

Sudden Valley               $573,000 (+1.6%)         135 (+2.3%)           10 (+11.1%)

Ferndale                        $637,450 (+6.3%)          344 (+3.3%)           16 (-5.9%)

Blaine / Birch Bay         $618,000 (+11.4%)         355 (+0.3%)           21 (+5.0%)

Lynden                          $685,000 (+6.8%)          200 (-2.0%)            21 (-4.5%)

Buyers who had been waiting for falling prices or rates were disappointed on both fronts, and will likely be faced with the same prospect in 2025. Demand continues to outpace supply, both in new houses being built, and from existing homeowners reluctant to sell and give up the record low rates they locked in a few years ago.

Mortgage rates are forecast to stay in the “new normal”. The Mortgage Bankers Association released their forecast for housing and mortgage rates at the end of the year. They see rates in the mid-6% range through 2026 (and possibly 2027). On a more positive note, they show home sales and new mortgage originations growing steadily during this period, indicating an influx of homebuyers who are unwilling to keep waiting on the sidelines for better news while prices continue to climb further out of reach.

Additionally, the Fannie Mae conforming loan limits have increased for 2025. The economists at Fannie Mae have approved an increase of 5.21% for Whatcom County, to a conforming (non-jumbo) loan limit of $806,500 for a single family residence. This is a positive sign for future home values, and an indication that we are not moving toward a declining market.

My advice to buyers is to get off the fence and get into the market. Everything always seems expensive when you buy, but when you look back ten years from now you will be glad you jumped in when you did. Don’t beat yourself up over prices or rates that got away. As is still the case, “The best time to plant a tree was 20 years ago. The second best time is now.”

What to know about likely interest rate cuts

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Will mortgage rates drop if the Fed cuts rates this week? Probably. It’s complicated. A rate cut in the federal funds rate is predicted for Wednesday at the end of a two-day meeting of the Fed’s Federal Open Market Committee (FOMC), the policymaking body of the Federal Reserve System. There are other events coming this week, including some important economic and earnings reports. Wall Street is anticipating a cut of 0.25% to 0.5%, which would be the first rate cut since March 2020. That was when the COVID-19 pandemic erupted and basically stopped all activity, and the Fed moved to be sure the U.S. economy didn’t completely seize up. The last time the Fed raised the rate was in July 2023.

The term “federal funds rate” refers to the target interest rate range set by the FOMC, and is a key tool for controlling inflation. This target is the rate at which commercial banks borrow and lend their excess reserves to each other overnight. Investors monitor the federal funds rate because it has an impact on the stock market. The rate is also important to the general public, as it can influence short-term rates on consumer loans and credit cards.

It remains to be seen how much a rate cut by the Fed will affect mortgage rates. It’s a common belief that a “rate cut” refers to all interest rates, but the Federal Reserve doesn’t set mortgage rates. Mortgage rates are determined by the bond market and the activity on Wall Street. The graph above is proof: Over the last two decades, the fed funds rate and the average 30-year fixed mortgage rate have differed by more than 5%, and by as little as 0.5%. If the fed funds rate were truly linked to U.S. mortgage rates, the difference between the two rates would be linear or logarithmic, not jagged. That said, the Fed does influence today’s mortgage rates. After its scheduled meetings, the FOMC issues a press release to the public which highlights the group’s economic opinions and consensus. For rate shoppers, one of the key messages to listen for is what the Fed says about inflation. Inflation is the enemy of mortgage bonds and, in general, when inflation pressures are growing, mortgage rates are rising. The link between inflation rates and mortgage rates is direct, as homeowners in the early-1980s experienced. High inflation at the time led to the highest mortgage rates ever. 30-year mortgage rates went for over 17% during this period. If the Fed believes that inflation is under control, then mortgage rates will drop.

It may take a while for the full effect of the Fed’s rate cut and comments to show up in mortgage rates, but rates have already been trending lower in anticipation of a cut. Mortgage rates have fallen more than half a percent over the last six weeks, their lowest level since February 2023 and down significantly from last year’s peak of 7.79%. Freddie Mac’s Primary Mortgage Market Survey showed an average U.S. weekly 30 year rate of 6.2% on 9/12, with some local lenders quoting rates in the high 5%’s.

There is a good chance that mortgage rates will continue to trend down. Waiting to buy may be the best strategy if you want to lock in the lowest rate. However, as I mentioned in my last newsletter, rate drops are a double-edged sword. While lower rates would give homebuyers more purchasing power, they could also lead to more intense competition for homes on the market, driving record-high home prices even higher. The supply of homes is not likely to increase with a modest rate drop. Many homeowners locked in rates around 3%. Rates under 6% might be promising news for buyers, but they won’t be low enough to tempt existing homeowners to move. “It’s one of those things where you should be careful what you wish for,” said Greg McBride, the chief financial analyst at Bankrate. “A further drop in mortgage rates could bring a surge of demand that makes it tougher to actually buy a house.”

So what should you do? My advice is to buy now, before the market get even more frenzied and prices start to climb. Buy what you can afford with a payment you can live with. If rates come down you can always refinance, but don’t put yourself in a corner where rates must come down for you to be comfortable. If you are going to be paying cash for your purchase there really is no reason to wait. Lower rates won’t benefit you, and would actually make your purchase more competitive and more expensive. Give me a call if you would like to discuss your particular situation.

2024 Mid-Year Market Review

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The mid-year numbers are in, and the market remains hot. The chart above shows median sales prices for single-family residential homes in Bellingham (top line) compared to all of Whatcom County (lower line), with a rolling three month average. The effect of the rise in interest rates in 2022 is clearly reflected in the price trends. At the start of 2022 mortgage rates averaged around 3%, and by the end of the year had more than doubled to about 7%. Prices peaked in June and July at $765,000 for Bellingham and $650,000 for Whatcom County. By the end of 2022 the median price in Bellingham had dropped to $647,000 (down 15.4%) for Bellingham and $570,000 (down 12.3%) for Whatcom County, erasing all gains for the year. Buyers were relieved to see reductions in prices, but were initially hesitant to borrow at the higher rates after missing a chance to borrow at the historic lows of the previous few years. Many stayed on the sidelines, hoping prices would continue to fall. Some brave buyers took advantage of the lower prices with the hope of a future rate refinance. “Marry the House, Date the Rate” became the motto of the hopeful.

We only know where the bottom of the market is when we have passed it, and in hindsight those buyers who made a move in 2023 appear to have made the right decision. Prices have stabilized and climbed back, even as rates remained over 6.5%. Bellingham prices have been back to the summer 2022 highs since January 2024, ending June at $775,000. Whatcom County climbed back to that previous peak in May 2024, then dropped slightly to a median sales price of $632,000 at the end of June.

The number of closed sales dropped significantly during that period, down 18% to 215 June closings in Bellingham, and down 23% to 639 sales for all Whatcom County in June. Part of this was due to fewer buyers willing to borrow at higher rates, but it was also due to a lower supply of available homes. Many homeowners who locked in at historically low rates have been unwilling to sell and give up their fixed rates. Supply versus demand has remained steady, so even though closed sales numbers are down, it has remained a seller’s market. Median days on market has remained incredibly low, at only 6 DOM for Bellingham and 8 DOM for Whatcom County at the end of last month. Bidding wars are still very common, especially within Bellingham, with many homes selling over list price.

Where do we go from here? Nobody knows for sure, but my crystal ball says that prices are only going to continue to rise. Recent economic numbers have shown inflation is nearing target levels, and the Federal Reserve has signaled a readiness to start cutting rates, possibly twice by the end the year. Buyers have already gotten used to rates in the mid 6% range, with prices rising. If mortgage rates drop below 5% I think the demand is going to blow wide open, with all the buyers who have been sitting on the sidelines jumping back in. Rates at that level still won’t be enough to enough to entice more sellers, so buyers will be fighting over a stubbornly low supply level. Bidding wars will intensify and prices will jump. If you are thinking about buying this year, I recommend making your move sooner rather than later.

A pair of bills from the WA Legislature to bring big changes

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Photo: Experience Olympia & Beyond

Two bills passed simultaneously in May ‘23 are going to bring big changes to zoning and construction of accessory dwelling units to all of Washington State. HB 1110, often called “The Middle Housing Bill”, addresses the state’s acute housing shortage, opening up affordable options for families, workers, and elderly and young home seekers. This bill effectively does away with single family residential zoning, allowing multi-family options on any city lot by the end of 2025. Here are highlights of what this bill allows:

  • Cities larger than 75,000: fourplexes everywhere; sixplexes if within ¼-mile of major transit stop or if two units are affordable
  • Cities 25,000 – 75,000: duplexes everywhere; fourplexes if within ¼-mile of major transit stop or if one unit is affordable
  • Cities smaller than 25,000 and in UGA contiguous with the largest city in county larger than 275,000: duplexes everywhere
  • Lifts parking mandates within ½-mile of major transit stop. For Bellingham this includes bus stops with a 15 minute max wait, which include 2 of the 4 WTA GO Lines. This means that a multi-family building can be constructed with no off street parking requirement in roughly half of the city.
  • Caps parking mandates at one space per unit on lots smaller than 6,000 sq.ft.
  • “Affordable housing” is defined as affordable to 60% of area median income for rental, and 80% of AMI for ownership

HB 1337 will make it easier for homeowners to add accessory dwelling units (ADUs) to their properties. Sometimes called in-law apartments or granny flats, ADUs are modest-sized—and most often more modestly-priced—homes that can be tucked into existing buildings, homes, yards, and neighborhoods. Here are the highlights of this bill:

  • Prohibits owner occupancy requirements. Properties in Bellingham that are zoned SFR (single family residential) will still have an owner occupancy requirement until 2026, when HB 1110 goes into effect.
  • Legalizes two ADUs per lot in any configuration of attached/detached.
  • Caps impact fees at 50% of those charged on houses. This will save a homeowner in Bellingham approximately $5,500 on the construction of an ADU.
  • Legalizes an ADU on any lot size that’s legal for a house
  • Lifts parking mandates within 1/2-mile of 15-min. transit stop; otherwise capped at 1 per ADU on lots smaller than 6,000 sf
  • Legalizes ADU size up to at least 1,000 sq.ft. The City of Bellingham has adopted a 1,000 sq. ft. maximum size. For a carriage house (ADU over garage), the garage counts towards sq. ft. calculation. Properties in Whatcom County outside of City limits will have a 1,248 sq. ft. maximum size.
  • Legalizes ADU height up to 24 feet (or the max. height for houses if < 24 feet). This will allow two ADUs to be stacked in two stories, bringing the full allotment to smaller properties.
  • Prohibits design standards or other restrictions that are more stringent than what applies to the main house 
  • Legalizes ADUs to abutting property lines on alleys
  • Legalizes ADUs in existing structures that violate current rules for setbacks or lot coverage
  • Prohibits requirements for public right of way improvements
  • Legalizes the sale of ADUs as condominiums. Homeowners in Bellingham have already begun to explore this option, and ADUs as “airspace” condominiums already amount for a large portion of building permits in King County.
  • ADUs in Bellingham must be stick-built or modular. Manufactured homes and tiny homes will be allowed in the County.

The City of Bellingham has already adopted these ADU rules. Other cities and unincorporated Whatcom County will have Comprehensive Plan updates by the end of 2025. Properties in the Lake Whatcom Watershed will be exempt from State rules. Neighborhood CCRS (covenants, conditions, and restrictions) can still prohibit ADUs, but it is unclear if this will stand up to an inevitable legal challenge.

These bills are going to create profound changes in the near future for owners of both existing homes and vacant lots. Give me a call if you would like to discuss how these new rules will affect you.

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