Real estate affordability has been a top concern in Spokane and Kootenai counties this year in both the commercial and residential markets, with high costs expected to persist in the new year, according to some real estate specialists.

Dave Black, CEO of Spokane-based commercial brokerage company NAI Black, says commercial real estate activity in the new year will be under pressure from elevated interest rates, high costs of commercial development, and increased investor interest in North Idaho.

Commercial real estate development has slowed for multifamily and retail properties, and leasing activity is mixed for industrial and office markets despite two interest rate adjustments by the Federal Reserve this year, Black says. The rate adjustments created an inverted yield curve where short-term rates are higher than long-term rates, he adds.

"Usually, short-term rates are lower than long-term rates, and it's created a lot of uncertainty in the market," says Black, adding that the continued high cost of financing is creating challenges for some developers to earn a decent return on investment.

In the multifamily market next year, as more apartment projects are completed, Black says he expects rental rates will level off. Also, since interest rates are still considered high, construction costs remain elevated, and rental vacancies are returning to normal. 

Industrial rents were strong in 2024, but vacancy rates have been rising as a surplus of large industrial buildings are completed, he says.

"The industrial market has a bunch of big, vacant buildings right now that were built in a more robust market," Black says. "We'll need to fill some of that industrial (space) up."

The office leasing market has been doing well this year due to a high volume of activity driven by shrinking, expanding, or relocating businesses. The leasing activity belies rising office vacancy rates however, especially in downtown Spokane, Black says.

Additionally, the city of Spokane has been contending with safety issues that are nudging some investors to do business in North Idaho, he adds.

"Most investors want to do deals in North Idaho because there's a lot of security and safety expenses that go with owning real estate in Spokane now," Black says. "Businesses are struggling in the downtown core, so it's tough to find investors that want to put more money into downtown."

In the residential market, Patrick Jones, executive director of the Institute for Public Policy and Economics Analysis at Eastern Washington University, says housing affordability is still a challenge, but has improved slightly this year, with a Spokane Trends Housing Affordability Index score of 71 as of the third quarter, up from a score of 68.4 as of Q3 2023, where an index score below 100 indicates that housing is unaffordable. 

A rapid increase in median home values that surged between 2019 and 2023 has been the main driver behind declining housing affordability in the market, Jones says. Additionally, rising median household income levels aren't keeping pace with home prices.

Home prices and household income will play a major role in market activity next year, Jones says.

"(Wages are) still way below the increase we're seeing in home prices," Jones says.

Median household income in Spokane County has increased to $73,600, as of 2023, up significantly from 2019 wages of about $60,000, explains Jones.

"I imagine that wages will go up a bit more than they would otherwise if the deportations that the administration is threatening come to pass," says Jones.

Wage inflation drives price inflation, he explains. "I don't anticipate that happening in the first half of the year or whether it starts ... in 2026, but the trend is not in the right direction with these kinds of events."

Mike Wendland, board president of the Coeur d'Alene Regional Realtors, says real estate activity in the Coeur d'Alene market has primarily been influenced by interest rates that are currently about 7%, and the market has been stabilizing after explosive growth during the pandemic.

Wendland, who also is a developer and a Realtor at Coeur d'Alene-based Century 21 Beutler & Associates, says market stabilization is creating more opportunities for both buyers and sellers in North Idaho, with fewer bidding wars and less extreme price hikes in the market this year. 

Notably, in-migration, elevated home prices, and low inventory in Kootenai County have been driving some homebuyers to other North Idaho counties this year, where Wendland says there are more opportunities to find affordable housing.

"We're seeing local people travel for work a little bit more than they ever used to—to Silver Valley, up north to Spirit Lake, or Athol—to find something more affordable," says Wendland. "We've even had situations where people move to Washington because Washington was more affordable than North Idaho."

The median Kootenai County home price as of Nov. 30 was $526,100, up 0.2% from the year-earlier month, according to Coeur d'Alene Multiple Listing Service data provided by Coeur d'Alene Regional Realtors.

In Spokane County, the median sales price of a single-family home in November was $420,000, up 3% from the year-earlier month, according to the Spokane Association of Realtors' Monthly Home Sales Report.

Additionally, a lengthy permitting process and development impact fees also are contributing to the housing affordability issues in Kootenai County, Wendland says. 

Delays in permit approvals in turn increase development costs, which ultimately are passed on to consumers, he says. 

"Building permits are months out due to the fact that builders and developers can't get a permit or subdivision through the building department," Wendland says. "By the time you get a house in the ground as a developer, you might have had to increase that price 40% or 50%."

Despite some development delays in 2025, Wendland says he expects to see more real estate activity focused in the Post Falls market.

"We'll see some more density there and more opportunity there," says Wendland. "They've got water, they've got sewer, and they've got the land."