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Spokane, Washington  Est. May 19, 1883
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Housing market rebounds despite higher interest rates

Spokane-area homebuyers and bankers are finding ways to work around higher mortgage rates.  (Jesse Tinsley/THE SPOKESMAN-REVIEW)
Spokane-area homebuyers and bankers are finding ways to work around higher mortgage rates. (Jesse Tinsley/THE SPOKESMAN-REVIEW) Buy this photo

The housing markets in Spokane and Kootenai counties appear to be rebounding after buyers and sellers have found ways to adjust to interest rates that have more than doubled from their historic lows.

When the market was at its hottest, buyers were forced to offer money well above listing prices and bidding wars became the norm.

But as the Federal Reserve has pumped up interest rates to combat inflation, prospective buyers are suddenly faced with mortgages that doubled the monthly cost for homes that until recently had been affordable.

Inventory also tightened as sellers held off putting their homes on the market because higher interest rates meant that they would have to buy another home of less value to match their previous mortgage payment, area real estate officials say.

“COVID messed up everything,” said Tom Hormel, president of the Spokane Association of Realtors. “In the last 45 days, we’ve seen the pace of sales pick up once people got past the initial shock of the sky is falling. People still need a home.”

Similar forces are at play to the east in Kootenai County, as sellers and lenders are getting creative to find ways for buyers to get over the initial shock of the higher mortgage rates, said Lindsay Allen, past president of the Coeur d’Alene Regional Realtors.

“This is such a strange market. Typically, when interest rates go up, prices go down and inventory goes up,” she said. “But for some reason, interest rates are up, inventory is still up and prices are staying very buoyant.

“In the modern era of the mortgage, I don’t think anybody has ever seen that. It’s hard to predict what is going to happen.”

A recent study by Boulder Home Source, reviewed five years of data from Zillow and ranked all 50 states based on the average sales prices over that time.

It ranked them with the state experiencing the least average-price growth listed first.

Under that measure, North Dakota had the smallest jump in the past five years, with a housing-price increase of 22.7%. Washington was 34th with 57.6%, and Idaho ranked 50th in price growth. Homes in the Gem State have increased by 91.9% over that time, according to the study.

Allen, a real estate agent with eXp Reatly Group in Coeur d’Alene, said she believes much of Idaho’s price increases came from housing booms in the Boise area.

“In the last five years, we were close to 75% appreciation from 2018 until now,” she said. “We hit our ceiling in about May of last year. Ever since then, we have been trending monthly 1-2% downward.”

Just as in Spokane, the higher mortgage rates caused a shock to the system, Allen said.

“The interest rates put a lot of buyers on the sidelines, and sellers as well,” she said. “A lot of them were saying, ‘Why would I walk away from 2 or 3% interest rates for a 7%?’ So, activity really dropped off in the fourth quarter of 2022.”

Work around

Allen said lenders, and some sellers, are using some rarely used tricks to get around the higher interest rates.

“We have a number of clients who are watching and waiting,” she said.

Just recently, some area banks started offering mortgages below 7%.

The drop in mortgage rates from November to February means “about $300 to $500 a month in affordability,” she said. “As soon as (mortgages) got just before 6%, they said, ‘Pull the trigger.’ ”

Some lenders have been offering what’s called a 3-2-1 buydown for prospective buyers. Under that scenario, the first year of the mortgage is 3% below market, the second year is 2% below and so on.

Some sellers are also offering to take a chunk of money off the purchase price to allow the buyers to pay for points, which means buyers can pay up front to get a lower mortgage rate.

“We’ve got about a month-and-a-half of inventory,” said Allen, referring to the time it would take to sell all the homes on the market. “That’s down from four months in September.”

Hormel said Spokane County is seeing similar conditions.

In January, the inventory of available homes was 573 homes. That was up 157% compared to the 223 homes available in January 2022.

The 573 homes represents about a two-month supply. The industry standard for balanced market is an inventory of six months, he said. As a result of the lower inventory, Spokane remains somewhat of a seller’s market.

It’s nothing like it was just even a year ago, he said.

“Buyers are not paying a premium for homes right now,” he said. “In this market, they are very fickle about pricing. If you are too aggressive (with the price of the home), the house is going to sit.”

Hormel, who works as a real estate agent for RE/Max of Spokane, said that doesn’t mean homes aren’t selling. He said he showed a house two weeks ago in the Medical Lake area.

“That agent priced the home aggressively, about $20,000 under market,” he said. “This house was an amazing deal, and they got people into a feeding frenzy.

“It ended up selling $50,000 more than it was listed for. They enticed the buyers.”

Waiting for ratesAccording to figures from the Spokane Association of Realtors, the median price of a home in Spokane fell to $370,000. It was roughly the same – $375,000 – in January 2022.

But Hormel said that number is somewhat misleading. The median price for Spokane County set a record of $450,000 in May .

“When interest rates track as high as they are, the high end (of homes) is not selling,” he said. “The median price drops because the high end (homes) are not selling.”

But buyers still aren’t finding many deals.

“People say prices are dropping. But the average price that homes are selling was 98.7% of what they were listed at,” he said. “Buyers aren’t coming and getting a 10% or 20% drop. They are selling right around what they are listing at.”

Despite the difficult financial situation, Hormel said mortgage rates remain historically workable.

“There’s an old adage: The best time to buy a home is five years ago,” he said. “The second-best time is today.”

Hormel said he bought his first house in 1994.

“Most homes were selling at 8.5 to 9%,” he said. “I left a wage-paying job to run down to the (loan) office just to get 8.5%.”

Allen agreed, noting that higher rent prices are reinforcing the fact that homeownership remains a solid investment.

“Housing is kind of a long-term hold. It’s a real launching pad,” she said. “It’s better to be paying your own mortgage than somebody else’s because rents are at an all-time high, too.”

Hormel recalled a client whom he helped sell a home in 2007 – the previous height of the local market prior to last year.

“At first, the market dropped and he asked, ‘Did I buy at the wrong time?’ Then 10 years later, his house was worth twice what he paid for it,” Hormel said. “When he called me in 2018, I said: ‘Dude. You did pretty good.’ ”

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