A Market Reset?
Boise Housing Market update June 16, 2022
There is a lot of change happening in the nation’s housing market, and we’re going to dig into all of that today, what it all means for the Boise housing market, and if we’re in store for a housing market reset.
News is coming out, prices are dropping, interest rates shot up at the end of last week, feds raised the rates by 75 basis point. The media does a fabulous job of sensationalizing everything, and while some of what they report is not wrong, it is often put into a false perspective. So, let’s weed through the fear mongering and talk about what I see, boots on the ground, right here, right now in the Boise housing market, and how that may affect where our market is headed.
There is so much information to share, I’ll break this into a few videos and blog posts. This one will focus on the overall effects of what’s going on with the Boise housing market, and then watch for my next few videos and blog posts which will be more specific for home buyers, home sellers, and new construction.
Let’s start with the biggest factor changing things right now in the Boise Housing Market: the interest rates.
Interest rates jumped up to over 6% for an average 30 year fixed conventional mortgage last Friday, June 10, 2022, and dropped slightly yesterday, June 15, 2022. after the Fed meeting. We’ll circle back to the Fed meeting, but the interest rates are the main reason home prices are dropping. It seems as if most people moving here were still able to buy at the high prices when the rates got up towards 5%. We had more people drop out when the rates got above 5%, and now even more affordability is lost with rates hovering around 6%.
Rates are not going to be dropping much in the near future, so to increase affordability, the home prices are having to drop. I will go into more detail on home prices dropping as well, but let’s stick with interest rate effect for now. As fewer people can buy, inventory is going up, and there are other reasons for the rise in inventory, of course I’ll discuss that too.
The Feds don’t expect to have their goals for controlling inflation to be met until well into 2024, and there were a lot of big IFs and unknown surrounding that goal at Wednesday’s meeting. In order to control inflation, interest rates will have to stay above the historical lows we had the last few years, and that can largely offset the benefit of a less expensive home from dropping prices.
I would expect that as of right now, since the market responded to the uncertainty of the Fed meeting by rising rates a few days before the meeting, that our interest rates will hover around 6% until the days preceding the next Fed meeting in July, when speculation and worry take control again, and I would expect to see another rate rise prior to that meeting. But I am not a mortgage expert, so we will just have to see on that one.
And a lot of people are asking, what if home prices keep dropping? And how does that effect overall appreciation for the Boise Housing Market?
Here’s what’s happening in the Boise housing market regarding home prices… yes, we are seeing price drops. Sometimes of $10,000 and sometimes of $50,000 or more. But I watch the Boise housing market numbers every day, go through pictures of homes, show homes, and I can tell you that most of the large price drops are in homes that were overpriced to begin with and do not show well. When a home drops to a price point that is in line with our current market, and it shows well, it will sell, and still possibly get full offers. Or if a seller started the home at the right price, it will get a few offers. I just showed a couple of homes that both had multiple offers because they were priced right, not crazy low, but priced right, and showed very well, with all the right updates in all the right places.
So as of today, our home values are actually still appreciating. How can that be with so many price drops? Well, appreciation and pricing are not the same thing. The data looks at the final sales prices of homes. As of now, those final sales prices are still averaging higher than they were last month. So, again, that supports the idea that the homes with the highest price drops are very overpriced, and when they do sell, they sell in line with market values, which is slightly higher overall compared to last month. Will this trend continue? We’ll just have to watch the numbers and find out.
And not all price points and submarkets are created equal, and there are variations of what to expect for home prices coming down within each. Of course, homes listed under the Ada County median price of just over $600k will generally have less of a price correction, and when priced right from day one, this is the price point that is still having multiple offers.
And let’s remind ourselves that homes getting multiple offers in one day is not a normal or balanced market, so as we return to a balanced market, if homes are on the market for even up to 8 weeks, it is still considered what was normal and actually, that is still considered a sellers’ market. If sellers could understand that they have to price their homes in line with affordability and the rising rates, and that they have to have their home showing beautifully, and that it may take longer than a day to sell their house, then we would stop seeing the current price reductions, because homes would already be priced correctly from the day of listing. But that is hard for sellers to comprehend right now as many are selling for the sole purpose of getting as much equity as they can out of their home.
That brings me to answering the question of why are people selling in the Boise Housing Market?
So yes, inventory is up. The numbers sound crazy, we are up something like close to 200% in inventory from last year at this time.That’s true, but lets think… last year at this time we had such low inventory, it was so historically low that when people came to look at homes, we were lucky to find 3 to look at that met their needs. So even though inventory is up, it is still low. It is, however, increasing every day right now as the rates rise and people hold off from buying.
As of today, there are about 1900 homes actively on the Boise housing market in Ada County, which includes new construction homes. This is about the same as in 2018, when we had a pretty stable, seller leaning market. In the peak of 2008, there were over 5500, and the population and number of homes in our valley at that time was much smaller.
But most people are not currently selling because they can’t afford their homes like was the situation in 2008. Most people are choosing to sell because they want to downsize, or upsize, or move closer to family, and are thinking this is their last chance to cash in on their equity before home prices go down. We also have some speculative investors who bought just to earn on the equity gain after 2 years and are now selling out. But many investors are hanging on if they have a long-term investment strategy as rents are still rising.
In 2008 inventory went up because sellers had to sell. Now, inventory is going up because buyers are not able to buy. The result of prices coming down will be similar, but not have the same effect. I don’t know what the effect will be. We have many factors coming together right now in a post-pandemic era that has never happened before. But if sellers don’t absolutely have to sell right now, then there is a reasonable possibility they will take their homes off the market after the summer, and just stay in their current homes. I can see a scenario where, in the fall, the Boise housing market stagnates because although prices may come down with rising rates, inventory could lessen after the summer rush because sellers aren’t financially forced to sell. I can see a potential stale mate, a potential market standoff between sellers not selling, builders not building, and buyers not buying until something gives. I am not saying that will happen, but it’s one possibility. Builders have pulled way back on permitting, and the fall could end up being an odd waiting period, a period of rest and reset to see where things pick back up in the spring of 2023.
Most people I have helped buy homes here the last 2 years have amazingly low interest rates and put in very large down payments. Most local Idahoans who bought homes before 2020 have huge amounts of equity, especially if they bought before 2016 or so. In fact, 58% of all mortgages in Idaho are under 4% and around 25% of homeowners in Idaho own the homes outright. So, there will have to be some major negative motivations for the majority of homeowners here to be forced to sell. If we enter into an unfortunate time of major job losses, we could see the Boise housing market severely affected in the coming years, but people here are resilient…their mortgage payments are far less than rent in most cases, and if they can find some decent, even if not ideal, replacement jobs, they will be able to stick in out in their homes.
But, as of this recording, June 16, 2022, job losses, and other economic speculations are not in play in the Boise housing market as of yet.
So, while demand has lessened due to affordability, we still have people moving here. Most buyers I am working with are retirees paying cash, people moving here for jobs, and less than before, but still investors are coming who want to get their investments out of California and into a market that has more benefits for them. We’ve got first time home buyers, and we still have families moving here to provide what they feel will be a better life for their families than they currently have in their home states. Overall, the results of political policy in other states is still the number one driver of people moving to Idaho. Unless those policies change, people will still come and find a way to make it happen.
We do have many fewer people able to make that happen right now for sure, and many are coming any ways and choosing to rent for a while. But if we have another unprecedented event like the pandemic, well, that will change everything again.
Watch for upcoming videos for buyers and sellers on how they can navigate, plan, and make an informed decision, how our market changes are affecting new construction, and more Boise housing market update videos as new numbers come out, and as I talk to more and more people about what their concerns are about why they are moving here still or have decided to wait.
So with all of this uncertainty in the market, my team and I are here to talk you through it.
Keep pressing forward, my friends.
