Market Journal: working through the 2022 Rate Shock from Kirkland

We are watching the real estate market shift in real time as the era of cheap money comes to a sudden end. The shock of rapid rate increases has taken a massive bite out of home buyer purchasing power in just a few short weeks.

If you are trying to buy a home right now, you cannot use the playbook from last year. We are seeing refinance volume dry up entirely, bidding wars starting to break, and buyers looking toward alternative financing structures to make the monthly math work.

The Return of the Adjustable Rate Mortgage

For the last decade, almost nobody talked about adjustable rate mortgages (ARMs). Fixed rates were so low that taking on any future rate risk made zero sense. Today, the spread between a thirty year fixed and a five year or seven year ARM has widened enough that buyers are taking a hard look at them again.

An ARM gives you a lower interest rate for an initial period of five, seven, or ten years. After that, the rate can adjust based on market indexes. The goal for many buyers in late 2022 is to take the lower payment now and plan to refinance before the adjustment period starts. You can use the payment estimation tool to see how an initial ARM rate lowers your monthly cost compared to a standard fixed loan by adjusting the interest rate and term inputs.

Local Shifts in the Kirkland Market

Here in the Kirkland real estate market, the sudden change in rates is hitting hard. This is an area known for high-end craftsman homes, modern townhomes, and tech professionals commuting into Bellevue and Seattle. When prices average near seven figures, a two percent jump in interest rates translates to over a thousand dollars more per month for the exact same property.

Sellers in King County are suddenly realizing that the days of listing on Thursday and having ten cash offers by Monday are over. Price cuts are appearing on the MLS, and buyers actually have the room to ask for inspection repairs again. It is a massive change for a market that was completely red-hot just six months ago.

How FHA Loans Keep Buyers in the Game

As rates rise, many buyers are finding that their debt to income ratios no longer fit into strict conventional guidelines. This is where FHA home loans become incredibly useful. FHA programs are not just for first time buyers; they allow for higher debt ratios and are much more forgiving of recent credit hiccups.

Underwriting with FHA is designed to help keep buyers qualified when monthly obligations increase. Here is what you need to keep in mind if you are considering this path in the current environment:

• FHA loans require a minimum down payment of three and a half percent.
• The property must pass an FHA-specific safety inspection.
• You will pay mortgage insurance both upfront and monthly for the life of the loan.
• Seller concessions can be used to pay down your temporary interest rate.
• You can refinance into a conventional loan later once you have built twenty percent equity.

Managing the Pivot

To stay on track in this market, you have to focus on structure over rate. This means looking at temporary seller buydowns, where the seller pays a lump sum to lower your interest rate for the first two or three years. It is a great way to ease into a mortgage payment while waiting to see if market rates pull back.

I am tracking these shifts weekly in my market updates archive to help buyers see past the scary headlines. The reality is that people still need to move, and those who learn how to use these financing tools will have a massive advantage over those who simply give up.

Questions I get about this

Is it safe to get an adjustable rate mortgage when rates are rising?

An ARM can be safe if you understand the timeline. If you plan to stay in the home for less than seven years, or if you fully intend to refinance when the market cools, the lower initial rate can save you thousands. However, you must be comfortable with the worst case scenario if rates stay high and your loan eventually adjusts.

Can I ask a seller to pay for my interest rate buydown in Kirkland?

Yes, and it is becoming common. Because homes are sitting on the market longer, sellers are often more willing to contribute to your closing costs than drop their listing price by the same amount. We can structure an offer where the seller pays for a temporary buydown, giving you a much lower payment for the first few years.

Dom's take, written November 30, 2022

The speed of this rate hike caught me completely off guard. I had to make incredibly painful phone calls to families who were mid-search, explaining that the exact same house now cost hundreds of dollars more per month than it did just six weeks ago. It was a tough pill to swallow for clients who felt like the dream of homeownership was slipping away right as they got close.

But this painful stretch also made me a much better loan officer. When rates were three percent, anyone could write a loan without much effort. Now, success is about deal structure, temporary buydowns, and extracting seller concessions to make the monthly payment work. If you are sitting on the fence today, the question is whether you want to compete against fewer buyers now using these smart strategies, or wait and fight everyone else again when rates eventually drop.

What I'd say now (August 2026)

Looking back from 2026, I was absolutely right to tell buyers to focus on concessions and structure rather than waiting. What followed late 2022 was the frozen middle, where high rates locked existing homeowners into their low payments, making inventory incredibly thin. Buyers who bought back then with seller-paid buydowns managed to get into the market before inventory completely dried up, and many have already found opportunities to adjust their financing.

Today, we are seeing a much more balanced, negotiable market where inspections and financing structures dictate your final payment more than the list price does. If I could do it over, I would have pushed even harder on FHA options early on, as those programs kept many local families from being priced out entirely during the worst of the rate shock.

Talk it through with me

If you are trying to make sense of your options in today's shifting environment, reach out to me directly to map out a clear plan. We can run a pre-approval in about five minutes, and my team regularly gets loans closed in fifteen days or less so you can negotiate with confidence.