New research confirms what home buyers in Spokane have long suspected: Lilac City is one of the most overvalued real estate markets in the country.
Florida Atlantic University and Florida International University release list 100 most expensive housing markets countrywide.
Spokane ranked sixth with home prices more than 45% higher than expected value based on past price history.
According to Ken H. Johnson, real estate economist and associate dean of the FAU College of Business, potential home buyers in the most overvalued markets pay peak prices and can subsequently sell properties at a lower price if a market correction occurs.
“(Spokane) is close to the peak and you don’t want to be the last to buy at the peak,” he said.
Ken Johnson and Eli Beraca, director of the FIU’s Hollo School of Real Estate, compiled a list of overvalued cities, using a 25-year history of monthly house prices from Zillow and other publicly available data sources to predict what house prices should currently be in a given specific case. market.
They compared these projected house prices to average closing prices to determine if the market is overvalued.
The study ranked Boise as the most overpriced city in the country.
Ken Johnson believes Spokane will experience the Goldilocks Effect, where a hot housing market can slow down and then eventually sink to an average home price that is neither too high nor too low.
“You don’t want prices to be too high or too cold,” said Ken Johnson. “You want to be close to the long term price trend. Spokane is well ahead of this trend right now, and this creates the potential for housing contraction. “
Eric Johnson, President of the Association of Realtors of Spokane, said that it is not surprising that Spokane is disrupting the 25-year trend of rising prices, but there are other factors to consider, including the growing economy and population of the region.
With low interest rates, homebuyers also get more housing for their money and benefit from mortgage payments that don’t fluctuate as rent, which has also been growing rapidly in Spokane in recent monthshe added.
“If you buy and are going to rent out a property in a year or two, you should get tired, but that’s in any market,” he said. “In my opinion, real estate is a long-term investment.
“If you plan on staying there for five years plus, you’ll be fine because you’ll be compensated if you receive an interest rate of 2.78% today and pay $ 30,000 on top of what (the house is worth), and you will withhold this amount. ” mortgage for 15 years, – he added, – you received these 30,000 dollars.
Spokane County households spend on average more than 25% of their income on mortgages and interest payments, according to the Washington Center for Real Estate Research, which calculates and maintains the Housing Affordability Index.
The index measures the ability of a middle-income household to pay mortgage payments for a home with an average price.
In the second quarter of 2021, Spokane’s affordability index was 91. When the city’s index is 100, households spend 25% of their income on mortgages and interest payments.
If the number falls below 100, this means that households spend more than 25% of their income on housing.
For loan approval, lenders often prefer that potential home buyers spend no more than 28% of their monthly gross income on housing costs, with no more than 36% of debt in debt.
The state’s affordability index was 88.4 in the second quarter of 2021.
According to the Spokane Association of Realtors, the average home price in Spokane County rose to a record high of $ 395,000 in July, up from an average of $ 301,509 in July 2020.
However, a slight increase in inventories and a decrease in prices, as well as a decrease in sales, may be signs of the beginning of market normalization, local realtors said a spokesman for the Review last month.
If interest rates rise, it could cause a slowdown in the housing market.
But the local real estate market is unlikely to bottom out as it did during the Great Recession, in part because there is no false sense of demand for housing, and banks are now more conservative in their mortgage lending practices, ensuring that buyers qualify for income. purchase, Eric Johnson said.
“I was here for the last time because of the bubble,” he said. “It made me dive into the dynamics of why this is happening, and we just don’t have the same dynamic that was in play the last two times the market was down.”
Ken Johnson agreed, saying that prices are unlikely to bottom out as the local market is supported by a steady stream of demand from buyers, a shortage of stocks and relatively low interest rates.
“We are approaching the peak of the housing cycle. So everything that happens in Spokane will be mitigated by these three things, ”he said. “I just don’t see him going through the floor. The conditions are not what they were 15 years ago. “
The influx of overseas buyers and increased teleworking opportunities have pushed Spokane into the country’s spotlight as an attractive place to live, fueling a surge in housing demand.
Ken Johnson expects Spokane to continue to be one of the most popular housing markets in the country.
“The best solution to any real estate problem is population growth,” he said. “Over time, it will work, and I don’t think Spokane will become less popular.”