Real estate activity in the Spokane area started off strong in 2022, and while demand is expected to remain high, affordability challenges in the new year likely will dampen industry growth for both residential and commercial markets, according to some industry representatives here.

Chris Bornhoft, president of Spokane-based Bornhoft Commercial, says, “2022 was a very diverse year, because at the beginning, we still had low interest rates and that was driving a lot of developers, investors, and, in some cases, buyers to continue to seek commercial projects and property.”

He says buyers could still get “cheap money” for commercial loans earlier this year until federal interest rate hikes began to impact commercial real estate in the summer. Additionally, growing inflation started eating into developers’ profit margins and contributing further to a market slowdown by the end of the year.

Dave Black, CEO of Spokane-based commercial real estate brokerage NAI Black, says that, along with higher interest rates, developers are becoming more uncertain about future projects as an expected recession could impact profitability in 2023.

Black says, “We’ve had a great year so far in 2022 but it did slow down here in the fourth quarter. There’s still a lot of money out there … and a lot of cash buyers in the market. Although, I don’t think that will continue into 2023.”

Looking to the coming year Bornhoft says developers in Spokane County are expected to focus on commercial real estate opportunities within the multifamily and industrial markets on the West Plains and along the Interstate 90 corridor toward North Idaho.

Black says multifamily real estate will be supported by continued in-migration.

The commercial retail real estate market is expected to grow for quick-serve restaurants along with gas stations and convenience stores, Black says.

He adds, however, that affordable, infrastructure-ready land also may be challenging to find in the new year.

Residential real estate sales followed a pattern similar to commercial sales this year, beginning with strong demand and low inventory in the first and second quarters, followed by slightly lower demand and increased inventory in the third and fourth quarters.

Tiffany Claxton-Standley, CEO of the Spokane Association of Realtors, says the Federal Reserve’s rate hikes have contributed to the residential market slowdown and have caused some homebuyers to reconsider whether they want to purchase a home in the current climate.

Year to date through Dec. 5, the number of single-family homes sold through the Spokane Multiple Listing Service is 17.6% below the year-earlier period, with 6,210 home sales, compared with 7,537 homes sold in the year-earlier period, Claxton-Standley says. 

Residential real estate is moving toward a balanced market and will shift toward a buyer’s market in the future, she says.

Home inventory has held steady from October to the end of November, with a total of 862 units, representing a 2.1-month supply, she says. At the end of November 2021, there was a 0.6-month supply, with 428 listings, according to the latest Spokane Association of Realtor’s Monthly Home Sales Report.

“More active inventory leads to more opportunities for people to have options between multiple homes and less competition when it comes to multiple offers,” Claxton-Standley contends. “So, it’s also a good thing.”

Last month, the median home sales price rose to $395,000 in the Spokane market—a 5.1% increase compared with November 2021 when the median price was $375,000.

Claxton-Standley says, “We may see median home prices remain flat and likely a small decrease in 2023 given that there’s a probable recession. It’s going to depend on the state of the economy and other factors, such as interest rates.”