Spokane Home Price Index – relative home prices over time
August 11, 2013 Leave a comment
“The House Price Index (HPI) shows changes in Spokane, WA single family home prices in logarithmic scale. The March, 1995 index value equals 100. Updated Tuesday, July 2, 2013. Real estate forecasts, analysis, statistics and appreciation rates are provided below.”
Spokane Real Estate Market – Home Price Forecast | LittleBigHomes. (The web site does not define the source of home prices – we assume this is average home price whereas realtors and local news often use median home prices.)
Here are historical year over year appreciation rates for Spokane, from the above web site:
2013 July Year over Year is -2.4% while 2013 cumulative versus 2012 is +1.7%.
Local news report uses an odd headline: “Spokane home sales have ‘recovered dramatically’ – Spokesman.com – Aug. 9, 2013″ based on unit sales up while pricing is down Year over Year for the month and barely up for the full YoY comparison.
Here is a comparison of Spokane versus Seattle, side by side, Spokane on the left, Seattle on the right. These indices are a logarithmic scale, both adjusted to a 100-level index, and should be used only to compare relative price growth, not actual prices. Horizontal tick marks are five year periods. A steeper curve means higher or faster price appreciation. Original charts slightly different in vertical height and re-scaled to be equal in size.
What this shows is that Spokane home prices appreciate much slower than in Seattle (and we could find similar comparisons to other major cities).
This means moving to Spokane (or any slow growth economic area) can become an unexpected one-way ticket.
If someone sells a home in a metro area, moves to and buys a home in Spokane (or any slow growing area), they will find that if they move back to the metro area, home prices at their destination will have risen much faster than those in Spokane. Because of this, a move to Spokane can become an unintended one-way ticket as Spokane sellers’ equity gains do not keep up with the destination market home price appreciation.
If that does not make sense, consider an example.
In addition to home prices rising slowly in Spokane, those who move to Spokane experience slow salary growth (about half the rate of the state average). Years later, your home value has risen little and your income has grown slower than Seattle – moving back to the big city is going to be tough.
Inflation adjusted Spokane area incomes are unchanged over 25 years. Over three decades, Spokane area incomes grew at half the rate of the state. And per capita income trend in Spokane is in a long term decline.
In other words, Spokane home price appreciation is less than elsewhere and income appreciation is less than elsewhere and that makes it hard to escape once you move here.
Let’s say hypothetically you sold a home in the metro area for $100k and bought a home in Spokane for $100k. Let’s assume cash purchases for simplicity.
After sale expenses and commissions, you net may be $92k. You then buy a home in Spokane for $100k, and bring another $8k cash to the deal.
Over the next ten years, the home in the metro area goes up by 50% while the home in Spokane goes up by 15%. At the end of ten years, you decide to move back to the city (may be job or family reasons).
You sell your Spokane home for $115k minus 8% to 10% selling costs (6% commission, sales tax, closing costs, you cover buyer’s fees, etc, assuming your buyer takes out a loan but wants you to pay part or all costs). You net about $103 to $105k.
You now buy back into a market where that $100k home you sold ten years ago (netting $92k) now costs $150k. If you had stayed in the metro area, you’d now own the $150k home but instead you sold out for a net of $92k.
Now you have to come up with the difference of purchase price of $150k minus $10-$105k or $45,000 additional cash.
In other words, moving from the city to Spokane and then back again, put you behind over the period. If you stayed behind and did not move to Spokane you’ll still own the now $150k home you bought for $100k. But since you moved to Spokane and then returned, it will cost you $45k + your original $8k or $53k.
Moving to Spokane becomes a one-way ticket as it costs a lot to escape. That’s fine if you plan to retire in Spokane and can convert your home equity (elsewhere) into a low cost home and some cash for investments.
But if you might need to move out of Spokane in the future, that move is going to be expensive and leave you worse off than if you stayed put and never made the move to Spokane.
This is not a Spokane specific issue but applies to anyone that moves from a more expensive, more active economy to a slower growth economy.