High costs and affordability issues continue to challenge the real estate markets in Spokane and Kootenai counties, with expectations for these issues to persist into 2025. Despite these challenges, North Idaho’s commercial market shows promise, with rising investor interest, particularly in areas like Post Falls.
Dave Black, CEO of Spokane-based commercial brokerage NAI Black, suggests that commercial real estate in the region will face pressure from high interest rates, elevated construction costs, and a shift in investor focus toward North Idaho. These challenges are compounded by the Federal Reserve’s interest rate hikes, which have led to an inverted yield curve—where short-term rates exceed long-term rates—resulting in greater uncertainty in the market.
Commercial Market Struggles Amid High Costs
In 2024, the commercial real estate development market has slowed for both multifamily and retail properties, while leasing activity in industrial and office sectors remains mixed. Black notes that, despite two interest rate adjustments by the Federal Reserve this year, long-term rates have yet to stabilize, which has made it difficult for developers to secure reasonable returns. This uncertainty is particularly evident in the industrial market, where a surplus of large, vacant buildings has led to rising vacancy rates.
“The industrial market has a lot of big, vacant buildings right now that were constructed during a more robust period,” says Black. “We need to fill some of that space before we can see market recovery.”
Meanwhile, office leasing has remained active due to businesses adjusting their space needs, though office vacancy rates have been climbing, particularly in downtown Spokane. The city has also faced safety concerns, which have nudged some investors to consider properties in North Idaho instead.
“Most investors are looking to North Idaho due to the increased security and safety costs associated with owning property in Spokane,” Black explains. “Businesses in downtown Spokane are struggling, making it harder to attract investment.”
Residential Market Faces Affordability Hurdles
Affordability remains a significant issue in the residential market, although there have been slight improvements this year. According to Patrick Jones, executive director of the Institute for Public Policy and Economics Analysis at Eastern Washington University, the Spokane Trends Housing Affordability Index rose to 71 in Q3 2024, up from 68.4 in the same period last year. However, the index score remains below the threshold of 100, indicating that housing is still largely unaffordable for many residents.
The steep rise in median home values between 2019 and 2023 has driven this decline in affordability. Despite wage growth, Jones points out that household incomes have not kept pace with the rising cost of homeownership. Median household income in Spokane County rose to $73,600 in 2023, up from $60,000 in 2019, but this increase still lags behind home price inflation.
“Wages are still far behind the rise in home prices,” says Jones. “We expect some wage inflation next year, but the trend isn’t heading in the right direction, particularly if political actions, such as potential deportations, influence the labor market.”
North Idaho Market Shows Stabilization Amid High Costs
In Kootenai County, the North Idaho market has also been impacted by high interest rates, which have been hovering around 7%. However, Mike Wendland, president of the Coeur d’Alene Regional Realtors, notes that the market is stabilizing after the pandemic-fueled boom. This stabilization is creating more opportunities for both buyers and sellers, with fewer bidding wars and less extreme price increases.
Despite higher prices and low inventory in Kootenai County, many homebuyers are turning to neighboring areas in North Idaho, such as Spirit Lake and Athol, in search of more affordable housing. “We’re seeing people travel further for work than ever before,” Wendland says. “Some are even moving to Washington, where housing is more affordable than in North Idaho.”
As of November 2024, the median home price in Kootenai County stood at $526,100, a slight increase of 0.2% from the previous year, while Spokane County’s median price was $420,000, up 3% year-over-year.
Development Challenges in Kootenai County
Development in Kootenai County faces additional hurdles due to lengthy permitting processes and high development impact fees, further exacerbating housing affordability issues. Wendland explains that delays in obtaining building permits have caused construction costs to rise significantly.
“Builders and developers are waiting months to get permits, which leads to a 40% to 50% increase in prices by the time a house is ready to be built,” Wendland says.
Looking Ahead to 2025
Despite the challenges, the North Idaho real estate market holds promise, particularly in the Post Falls area, where increased demand and infrastructure readiness are expected to spur more development. Wendland anticipates a shift towards higher-density projects in Post Falls, which has the land and utilities in place to support such growth.
“We’re going to see more density in Post Falls,” says Wendland. “They’ve got water, sewer, and the land to accommodate future growth.”
As the region faces continued affordability challenges, the evolving dynamics of the commercial and residential markets in North Idaho will be shaped by rising interest rates, the cost of construction, and shifting investor interest—making 2025 a pivotal year for the local real estate landscape.
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