Nov. 16—Spokane County's housing market continued to cool off in October as inflation and elevated mortgage rates prompted buyers to pause their home purchases.
In the county, 487 single-family homes and condos on less than 1 acre sold in October, a 33.4% decrease compared with 731 homes in October 2021, according to the Spokane Association of Realtors.
The local housing market hasn't seen a year-over-year sales percentage drop that significant since July 2010 when 347 homes sold, a 35.5% decrease compared with 538 homes sold in July 2009, according to Realtors Association data.
"The 7% interest rate is making a lot of people freeze," said Tom Hormel, SAR's 2023 president-elect. "Listings are down and that comes mostly from the fact that people aren't willing to exchange the great interest rate they have on their old home for a 7% interest rate on a home they love."
The 30-year average mortgage rate climbed from 3% in January to 7.08% as of Thursday, according to Freddie Mac data.
Hormel said last month's sales decrease is not a great cause for concern as the county's housing market is reaching an equilibrium following a pandemic-induced frenzy where out-of-area buyers flocked from larger expensive metros to midsized cities like Spokane.
The median closing price for homes and condos on less than 1 acre was $395,000 in October, a 6.8% increase over October 2021's median of $370,000, according to data from the Realtors association.
The median price, however, has dropped considerably from the all-time high of $450,000 recorded in May.
South Spokane had the greatest median closing price at $477,500 in October, followed by $440,000 in Spokane Valley and $384,500 on the West Plains.
The median in north Spokane was $327,000. Downtown Spokane's median was $315,000, according to recent data.
Despite a cooldown, some 98% of homes on the market in October sold for asking price with about 16% selling above list price.
A year ago, nearly all area homes sold at list price with about 39% closing above asking price, Hormel said.
Housing inventory rose to 2.2 months in October — its highest level in more than three years, Realtors association data show. That means it would take more than a month and a half to sell all properties listed on the market.
A balanced market — favoring neither buyers nor sellers — typically has about six months of inventory.
"Every time inventory goes up, it helps buyers," Hormel said.
Hormel said he's seeing fewer bidding wars and an increase in sellers accepting offers with VA and first-time homebuyer loans, providing more opportunity for buyers should they choose to enter the market.
"VA loans were hard to get accepted six months ago," he said.
"Everyone was coming in with conventional loans or cash. But now, with fewer multiple offers, you are seeing VA loans and first-time homebuyer loans getting accepted."
Ken Sax, a broker who oversees about 770 licensees in Washington for Professional Realty Services International, agreed that interest rates are impacting the local housing market.
"Prices are holding steady. We are definitely not where we were eight to nine months ago with 10 offers on a house," Sax said.
"Sellers right now are having to realize that they aren't going to get what they've gotten eight to nine months ago."
Sax said rising housing inventory will likely continue to put downward pressure on median home prices.
With an increase in supply, the county's housing market is beginning to normalize toward a balanced market, but it's not there yet, Sax said.
"Although two months (of inventory) is an improvement, it's still a deep seller's market," Sax said.
Sax anticipates prices will hold steady into next year as winter typically marks a seasonal decrease in activity before picking up in the spring.
A shortage of housing inventory will prevent significant decreases in home prices for most of the country in 2023, despite inflation, elevated mortgage rates and slowing sales activity, said Lawrence Yun, the chief economist for the National Association of Realtors.
In 2023, Yun expects home sales nationwide to decline by 7%, while the median home price will increase by 1%.
Price gains and declines will vary depending upon metro area, he said.
The median existing home price nationwide in September was $384,800, according to NAR.
October data has not been released.
Yun projects a strong rebound for housing in 2024, with a 10% jump in home sales and a 5% increase in the national median home price.
Yun added that signs point to mortgage rates topping out as October's consumer price index showed inflation rising less than expected, but he expressed concern about the gap between the 30-year fixed mortgage rate and government borrowing rate.
"If we didn't have this large gap, mortgage rates wouldn't be 7%, they would be 5.8%," Yun said in a statement. "A normal spread would revive the economy. If inflation disappears, then we'd see less anxiety within the financial markets and lower interest rates, which would allow owners to refinance."