The housing market is rising despite higher interest rates

Housing markets in Spokane and Kootenai counties appear to be rebounding after buyers and sellers 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 fight inflation, potential buyers are suddenly faced with mortgages that doubled the monthly cost of 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 they would have to buy another home of lesser value to match their earlier mortgage payment, area realtors say.

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

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

“It’s 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 go up, inventory is still up, and prices stay very high.

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

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

It ranked those with the state experiencing the least average price growth first.

By this measure, North Dakota had the smallest jump in the past five years, with a 22.7% home price increase. Washington was 34th at 57.6% and Idaho was 50th in price growth. Homes in the Gem State have increased by 91.9% during that time, according to the survey.

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

“In the last five years, we were close to 75% appreciation from 2018 to now,” she said. “We hit the ceiling around May last year. Ever since then we’ve been trending monthly 1-2% down.”

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

“Interest rates are putting a lot of buyers on the sidelines, and sellers as well,” she said. “A lot of them said, ‘Why should I go away from 2 or 3% interest for a 7%?’ So activity really fell 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 customers who are watching and waiting,” she said.

Recently some banks in the area 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 to just before 6%, they said, ‘Pull the trigger.'”

Some lenders have offered what is called a 3-2-1 buydown to prospective buyers. Under this scenario, the first year of the mortgage is 3% below market, the second year is 2% below, and so on.

Some sellers also offer to take some money off the purchase price to allow buyers to pay for points, which means buyers can pay upfront to get a lower mortgage rate.

“We have about a month and a half of inventory,” Allen said, 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 experiencing similar conditions.

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

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

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

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

Hormel, who works as a realtor 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.

“This agent priced the home aggressively, about $20,000 below market,” he said. “This house was a great deal and they made people go crazy.

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

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

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

“With interest rates as high as they are, the high end (of housing) is not selling,” he said. “The median price is falling because the high end (houses) aren’t selling.”

But buyers still don’t find many deals.

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

Despite the difficult economic situation, Hormel said mortgage rates remain historically viable.

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

Hormel said he bought his first house in 1994.

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

Allen agreed, noting that higher rents reinforce the fact that home ownership remains a solid investment.

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

Hormel recalled a client he helped sell a home in 2007 — the previous high in the local market before last year.

“In the beginning, the market fell and he asked, ‘Did I buy at the wrong time?’ So 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 well.’ “

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