Homebuyers in Spokane County may have an easier time finding a property in a real estate market is beginning to swing in their favor.
The Lilac City’s housing market is beginning to normalize following a homebuying frenzy during the pandemic that saw ever-increasing demand, bidding wars and skyrocketing prices.
Many area homes are undergoing price reductions. Some are remaining on the market longer. Sales are decreasing and prices are softening from record highs seen earlier in the year.
The median closing price for homes and condos on less than 1 acre was $416,450 in August, a 7.6% increase from $387,000 in August 2021.
Last month’s median, however, was a drop from $419,950 in July and the all-time high of $450,000 in May, according to data from the Spokane Association of Realtors.
“We’re seeing a housing market slowdown,” said Rob Higgins, executive officer of the Realtors association. “There are all kinds of factors, but mortgage rates still have the biggest impact.”
The U.S. Federal Reserve on Wednesday increased interest rates by three-quarters of a percentage point to quell inflation, the third such increase in a row. As of Thursday, the 30-year average mortgage rate reached 6.29% and the 15-year was 5.44%, according to Freddie Mac.
In the county, 657 single-family homes and condos sold in August, a 16.7% drop compared to 789 homes and condos sold at the same time last year.
Higgins anticipates the county’s year-over-year home price percentage increases will moderate to about 3 percent to 5 percent.
“Our median sales price goes up historically about 3 to 3½ per year,” he said. “Since 2011, we have been on a gradual increase.
“When the pandemic hit, we didn’t know what was going to happen. Prices went crazy because of supply and demand.”
Housing inventory in August reached a 1.6 month supply, meaning it would take just more than a month and a half to sell all listed properties on the market.
For comparison, the county’s housing inventory was a little more than half of a month in August 2021. A balanced market that favors neither buyers nor sellers typically has six months of inventory.
“Our increase of inventory is pretty significant when compared to 2020 and 2021,” Higgins said.
While some buyers who purchased or refinanced homes at record-low interest rates during the pandemic are choosing to stay put, others sidelined early in the year because of frenzied demand could now face reduced competition for homes, he said.
‘The pendulum is swinging more toward buyers in that there’s more choices out there,” Higgins said.
“With more choices, buyers will have a better chance of getting into a home.”
Are Spokane’s home prices primed for a correction?
Spokane’s housing market has the greatest likelihood for a price correction in the nation, according to a recent report by researchers at Florida Atlantic University and Florida International University.
Researchers calculated price-to-rent ratios for 100 metro area by dividing an area’s average home price by annual rents. They obtained data from Zillow’s home value and observed rental indices, and other public sources.
Price-to-rent ratios are used as a benchmark to estimate whether its cheaper to rent or own property.
Spokane led the nation with the greatest price-to-rent ratio of 32.08%, meaning people who are purchasing homes in the Spokane market are paying $23.79 per $1 of rent, when the average amount they should be paying is $18.01 per $1 of rent, based on past pricing trends, according to the report.
“In Spokane, your prices are high, but relative to rent they are really high,” said Ken Johnson, an economist at FAU’s College of Business and co-author of the report. “So, there’s potential for a price correction.”
Johnson said a price correction won’t happen overnight. Instead, prices will gradually soften.
The report suggests consumers may want to consider renting while home prices are elevated in Spokane. Renting will lessen demand for homeownership, which, in turn, will put downward pressure on home prices, the report said.
Consumers purchasing a home at the $416,450 median with a 20% down payment and a 30-year fixed rate mortgage can expect to pay about $2,465 a month at current interest rates, according to Bankrate’s mortgage calculator.
Median rents in Spokane are $970 for a one-bedroom apartment and $1,310 for a two-bedroom unit, according to Apartment List, a website that tracks nationwide rental data.
“When you rent, you don’t have an equity position,” Johnson said.
“But if you buy in Spokane and prices go down, wow, you lose a lot of equity. If I was moving to Spokane right now, I’d be looking to rent.”
Kootenai County cooldown
Kootenai County, much like Spokane, is experiencing a housing cooldown from a pandemic high that put Coeur d’Alene on the map as a top emerging real estate market in the nation last year.
Kootenai County’s median price for homes on less than 2 acres in August was $555,500, up 18.2% from the same time last year, according to data from the Coeur d’Alene Regional Realtors.
Home sales, however, were down 21.6% in August compared to the same time last year. Properties are also remaining on the market an average of 67 days, down 13% from August 2021.
“What we are finally seeing is a stabilization of the market,” said Dave Brown, broker/owner of RE/MAX Centennial, which has offices in Coeur d’Alene and Liberty Lake. “We are seeing fewer multiple offers, although we are still seeing some depending on the home, price and location.”
It remains a seller’s market for homes between $300,000 to $600,000, but properties listed above $1 million are now favoring buyers, Brown said.
“It has been 10-plus years in Kootenai County that we’ve seen price increases and it’s not sustainable,” he said. “We are seeing the market stabilizing and becoming an equal buyer-seller market.”
With nearly four months of housing inventory, homebuyers in Kootenai County have more choices compared with the same time last year, when inventory was about a month’s supply, Brown said.
“Buyers aren’t having to reach out and make an offer within hours of a home being listed,” Brown said. “They are taking their time.”
Despite declining home sales, property values last month were up 7.2% compared with the same time last year, Brown said.
Price drops are occurring in the Kootenai County market, but some of it is attributed to sellers listing their properties based on values from last year, Brown said.
“Now, they are realizing they can’t do that,” Brown said.
Despite cooldown, housing demand likely to persist
The median existing home price nationwide was $389,500 in August, a 7.7% increase from $361,500 in August 2021, according to the National Association of Realtors.
August marked the second consecutive month that the nationwide median dropped after reaching a record high of $413,800 in June.
“The softness in home sales reflects this year’s escalating mortgage rates,” Lawrence Yun, NAR’s chief economist said in a statement. “Nonetheless, homeowners are doing well with near nonexistent distressed property sales and home prices still higher than a year ago.”
Housing inventory nationwide will continue to remain low in the coming months, Yun said.
“Some homeowners are unwilling to trade up or trade down after locking in historically low mortgage rates in recent years, increasing the need for more new-home construction to boost supply,” Yun added.
Brown anticipates the Kootenai County market will continue to stabilize going into the fall.
Buyers will have more room to negotiate and homebuilders are beginning to offer incentives for new properties, he said.
“That’s a good sign the market is coming around,” Brown said.
Millennials – the largest group of potential homebuyers – likely will continue to fuel housing demand in Spokane, said Higgins, of that county’s Realtors association.
“There’s going to be people in the prime homebuying age for a long time,” Higgins said. “So that’s going to keep demand up. Those people that can, will want to get into housing. But a long-term concern is the affordability issue. I think that’s something to watch closely, especially in the West.”
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