Elevated interest rates are behind market slowdowns across both commercial and residential real estate sectors in Spokane and Kootenai counties this year, according to some real estate industry specialists.

Dave Black, CEO of Spokane-based commercial brokerage company NAI Black, says, "Business is about half of what it was in 2021 and even 2022 ... which were actually record years for us."

Commercial real estate activity was substantially better during the pandemic, carried by strong industrial and investment markets, says Black, adding that interest rates have slowed commercial activity in those markets and others in 2023. 

In the hospitality and retail real estate markets, vacancies are on the rise with closures of several restaurants and brick-and-mortar retail establishments.

Occupancy rates have stabilized at about 95% for multifamily properties, down from highs of 99% to 100% during the pandemic, Black says.

"We're at more normal levels now," he says of multifamily occupancy rates. "New projects are harder to lease up than they were, and rents are remaining fairly flat."

As the 2024 presidential election approaches, a significant drop of interest rates is unlikely, Black says, but he does expect to see rates trend slightly lower. 

Jared McFarland, board president of the Coeur d'Alene Regional Realtors, says many people are waiting out the election year, and he anticipates residential real estate likely will continue to slow in 2024.

McFarland, who also is an agent at Coeur d'Alene-based Century 21 Beutler & Associates, says contraction provides relief to homebuyers. 

"We needed things to slow down a little bit because it was an exaggerated market with such a low inventory and prices rising so fast that we needed to step back," he says.

The market slowdown has allowed inventory levels to rise, resulting in improved buying conditions with fewer bidding wars and more negotiating leverage for purchasers, he says. 

However, if interest rates become even slightly more affordable, the market can expect an influx of buyers, due to pent-up demand, McFarland says. 

Overall, McFarland says he expects residential real estate activity will stabilize in the new year.

Patrick Jones, executive director of the Institute for Public Policy and Economics Analysis at Eastern Washington University, says the Spokane Trends Housing Affordability Index shows affordability has declined steadily since 2018 in Spokane County, with a score of 68.4 as of the third quarter. An index of 100 or above indicates housing is more affordable. 

"It's considerably less affordable for a first-time homebuyer," says Jones, who notes the third quarter index score for this group is 51. 

The median single-family home price in Kootenai County in November was $525,000, down 4.5% from the median price in November 2022, according to information from the Coeur d'Alene Regional Realtors' Market Snapshot report.

Year-to-date through November, 2,006 homes were sold in Kootenai County, a 17.6% drop from the year-earlier period. As of Dec. 5, the number of active listings was up 3.6% from a year earlier, according to the snapshot.

In the Spokane area, the median single-family home price was $407,750 in November, growing 3.2% from the year-earlier month, according to the latest Spokane Realtors' Home Sales Report. From January through November, however, home prices were down 2.1% from the year-earlier period.

There were 5,139 home sales from January through November in the Spokane area, a decline of 18.1% from the year-earlier period. November new listings totaled 562, up 17.3% from 479 new listings reported in November 2022.