Spokane’s housing market is currently wavering on the razor’s edge of too hot to handle, and too cold to hold. For the first time in over a decade, July 2022 saw housing inventory increase, while the greatest year-over-year decrease in home purchases also occurred.
So, what’s happening? How can we be in a housing crisis, while also simultaneously having surplus supply and lowering demand for houses?
Like all complex issues revolving around our local and federal economy, there are several factors that are all contributing to this problem.
Well, like everything having to do with housing, it’s complex.
Starting at the federal level, interest rates on the average 30-year mortgage have risen approximately 2.5% since the beginning of the year. This has caused people all across the country to become wary of purchasing a home at such a high interest rate.
There is speculation among many local realtors about other contributing societal factors. The Millennial Generation, which is currently in the prime home-buying demographic, are not buying homes as rapidly as previous generations. This is the first summer where more options for travel have become available since 2020, and people are more interested in traveling with family than looking for a house.
Overall, there is just generally less urgency for those who can afford to buy a house right now compared to just a couple of months ago. This however does not circumvent the fact that in the Spokane area we are still underbuilt by almost 30,000 homes. Unfortunately 8 out of 10 families are still unable to jump into this market, despite there being a slowdown.
But there’s something else at play here, too. Builders and developers are beginning to face a grave new problem. Compared to last spring, there has been a decrease of 15% in home sales. And the number of homes that have been built to completion, but remain unsold, has hit a 15-month high.
The only way around this issue is to cut the price listed for their completed stock, and pull the plug on many of the unfinished projects.
Makes sense. But the impacts are going to worsen our housing crisis. Consider this: as developers pull back on projects to adapt to the hyper-sensitive market, our chronic lack of housing supply will deepen.
A recent New York Times Article discussed this very phenomenon featuring Spokane’s own Hayden Homes and the challenges facing builders in the Pacific Northwest.
Sam Khater, an economist, describes the situation we are facing this way: “The Federal Reserve is trying to snuff out inflation by increasing interest rates, which is leading to a pullback in construction, which will make housing even less affordable down the road. In a sense, policymakers are solving the immediate cost-of-living crisis (inflation) by making the longer-run cost-of-living crisis (housing) even worse.”
The solution according to the NYT piece is for federal, state and local governments to partner with developers and builders to ease the burdens of the cyclical housing market, so that builders can continue to produce even through the downtimes.
For instance in Spokane, yes demand from qualified buyers is low right now. But the long-term problem that Spokane will face is when more families can afford to buy in this market and demand for housing rises again, there won’t be enough housing stock to fulfill the need, and it will take far too long for builders to be able to ramp back up again.
Houses take a long time to build. Financing. Permitting. Construction. None of these phases are simple. But government can reduce barriers to building that would help builders gear up again as demand increases–such as reducing permitting times or providing incentives to keep building during downtimes.
Housing need is not a faucet we can turn on and off–even as demand for new construction waxes and wanes. In order to truly fix Spokane’s housing crisis, builders need to keep building, and only in an environment where builders have more security and stability can that occur.
Ryan Smith | Government Affairs Coordinator | firstname.lastname@example.org