Interest rates are on everyone’s mind these days, and it's no surprise that many of the people I talk to—whether friends, clients, or even acquaintances who find out I’m in real estate—ask the same questions: What will interest rates do? Should I buy now or wait until they come down?

It's a conversation happening not only in Spokane, but across the country as buyers, especially first-time homebuyers, try to navigate an ever-changing market. In the wake of the Federal Reserve’s Sept. 18 rate cut of 50 basis points—a half-percent—with more cuts anticipated throughout the rest of this year and into the next, that conversation has become both exciting and tricky as lower rates may also equal more competition.

For first-time homebuyers, lower interest rates will mean more affordability as they search. Lower rates also mean more buyers who weren’t already looking will enter the market along with current homeowners who are looking to sell their homes but have been hesitant because of the low rate they locked in a few years back. Jumping from a 2.5%—or lower in many cases—to a 5.75% or even a 5% rate may be an easier pill to swallow than recent 6.5% to 7% rates.

The current median residential sale price in Spokane is sitting around $430,000. A first-time homebuyer purchasing a $430,000 home with 5% down and an interest rate of 6.5% could expect monthly payments exceeding $3,000 once property taxes, home insurance, and private mortgage insurance are included.

If interest rates continue to drop as expected, those same first-time buyers could see a meaningful reduction in their potential payments, making homeownership seem more affordable.

In homebuying, there is an oft-quoted rule we call the “1%-10% rule," which highlights the delicate balance between interest rates and affordability. This rule illustrates that when rates decrease by 1 percentage point, a buyer can, with the same monthly payment, afford a home that is 10% more expensive, meaning our buyer from before could pay the same $3,000 but increase their purchase price to $473,000 thus opening up the field of inventory in an already limited market. For buyers currently searching, this could mean new possibilities, but it will also draw new buyers into the market who may not have been able to afford the current home prices.

Spokane is no stranger to this dynamic. With low inventory and a competitive market, understanding how interest rates directly impact purchasing power and market activity is essential for all buyers. As rates fluctuated mostly between 6.5% and 7% in 2024, Spokane’s 4,202 sales year-to-date is still a far cry from the 5,171 in 2022 at this same time when rates were already climbing. For reference, at this time in 2021—the peak for sales in the last five years—there were 5,852 closed sales.

While lower interest rates are often seen as a win for buyers, the increased activity and potential influx of competition could make it more difficult to secure the right property, even as affordability improves. For sellers, this can be both a blessing and a curse. There will likely be a larger pool of buyers for your property, but you are jumping into the same pool when you move on to the next home purchase.

According to Spokane Realtor data, sold homes have spent an average of 12 days on the market in 2024 with homes over $500,000 taking the longest to sell and triple the time it took in 2021. For sellers, decreasing rates should help homes sell quicker than they have in the last year.

Though still higher than our low of 2021, Spokane’s housing market is still experiencing tight inventory, which means that for each drop in interest rates, a new wave of buyers is likely to emerge. Sellers finally deciding to make the move could mean an increase of homes for sale, but those sellers are also buyers. Will it be a frenzy? Not likely to be similar to what we saw during the pandemic, though it will undoubtedly be an increase in activity from what we have seen in the last two years.

What is a homebuyer to do, then? For buyers who can afford the slightly higher payments associated with current interest rates, it may be wise to act now ahead of the competition and refinance later rather than wait for rates to drop. For those who decide to wait, make sure to prepare everything you need with your lender and real estate professional, so when the “perfect house” comes up for sale, you will have a plan in place that will help you make the most of Spokane’s shifting housing landscape.

Branden Griffith is a Realtor with Shoenrock Griffith Group, an affiliate of Windermere Real Estate City Group LLC, in Spokane.