Hello everyone and Happy New Year!
I hope you all had a wonderful holiday season! I don’t know about you, but I am super pumped about the possibilities of 2023, whatever it may have in store, bring it on…I’m ready. It’s going to be an interesting year in the housing market, and of course in the Boise housing market.
Let’s start with a recap of the Boise Housing Market for 2022, and we might as well start with the thing EVERYONE is talking about…
So yes, housing prices have dropped. Our median sales price for the valley finally dropped below the median sales price of the same time in 2021. However, before we get into all of this, a word of caution…please, please use your own wisdom and do not buy into all the fear people are selling trying to get clicks and views! I have seen and heard some pretty far out things about the Boise Housing Market that just aren’t true. I saw one person mentioning that the new construction sites are abandoned. While they have slowed, they are still building and still selling. Be cautious when people are comparing numbers from this year, or this coming year, to numbers during 2020 and 2021, like comparing inventory or days on market to that time period. 2020 and 2021 were not normal, and of course when you compare an average of 1 day on market to the current average of about 40 days on market (which is within normal for Boise, by the way), the percent increase is huge. Even coming up in 2023, comparing those numbers to 2022 will not be a complete picture as the 2022 market was largely a carryover from the pandemic driven housing market.
Interest rates were really the key factor to the 2022 Boise housing market. Most people who bought homes in early 2022 who were able to get under about a 5.5% rate, even though they may have paid more for the same home than they would pay today, their house payments are still lower due to a lower rate than those paying less for a home today and having to go with a 7% rate or higher. That is why sellers today, and for 2023, need to understand that they not only need to price their home lower than they think, but then offering a rate buy down incentive goes a long way for a buyer facing high rates.
In 2022, as the interest rates rose, sellers, unless very motivated, generally held onto the higher prices. And not because they couldn’t sell for lower. As of today, most sellers can sell for lower and will still walk away with a ton of equity. But they just have a hard time wrapping their head around the fact that they can’t sell their home for what their neighbors did in 2021.
We saw a large increase in inventory through the summer of 2022 as sellers wanted to sell high, and we saw last summer as their last chance to do so, but then at the same time, interest rates rose, lessening buyer demand. We had a lot of sellers who were not that motivated to sell, so they began to take their homes off the market after the summer rush, and we have seen a big increase in sellers taking their homes off the market this fall and winter, which has led to lessening of inventory compared to late summer and early fall of 2022.
An interesting pattern that began to emerge in fall of 2022 was that certain price points, like homes under our median price point of about $550,000 or so, the sweet spot for first time homebuyers and investors, were hit harder by rising rates and the uncertainty of the market. So that market is seeing more inventory, especially among builders, and larger price drops for motivated sellers. But at the same time, the cash non-investor buyer really stepped it up this fall, and they tended to be buyers who wanted custom homes for retirement, so we had an increase of demand for custom older homes that were over $800,000 in certain very desirable areas of the valley, like in Eagle. We even still had some bidding wars in that price point on the right homes.
So, this emerging pattern is where I will start my predictions for 2023. (Disclaimer…Summer is not a wizard or magician, nor does she have any skills of prophecy, but she does have a pretty good grasp on the realities of the Boise Housing Market and wants to help people make informed decisions and not decisions based on fear).
I think we will see big differences in micro markets emerging. We won’t be like 2020 and 2021 where all micro markets were affected by the high demand and low inventory evenly. I think that the first-time home buyer and investor market will still show the biggest price declines. If rates hover around 6.5% or go higher, the only way for sellers to make it affordable for people in that price point is to lower prices and offer rate buy downs. I think we will also see an increase in inventory of existing homes in that price point IF financial distress comes into play from job loss because people at this price point tend to put less money down, and therefore, have less equity. However, this will be interesting to watch play out. I am still not totally convinced that there will be enough job losses that will cause people to sell homes and cause inventory to really increase. And of course, most investors are waiting on the sidelines for now, which, as a side note, makes it potentially a better time to buy for first time buyers if they can afford the payments and if they intend to stay in the home for several years, because you know that the second the home prices drop significantly, investors will swoop in and first-time home buyers won’t be able to compete.
The next micro market where I see the biggest price declines happening is in homes that were built in 2020 and 2021, homes where people were waiting to sell so they didn’t have to pay capital gains, homes where people paid over $600k, didn’t really get what they wanted due to the pandemic frenzy, and would now like something better. And homes where you have 2 income earners who are working from home with out of state salaries and may be more vulnerable to first line layoffs, if those layoffs in large amounts really do come. But the issue here is that these sellers will have to be willing to give up a 2.5% rate for a 7% rate, and, if they really did get laid off, rent would be more expensive than their house payment with the 2.5% rate, so then again, maybe these people will stay put. Okay, if they don’t then this is the next micro market, I predict a larger price decline.
And then the third micro market I see a bigger price decline…for the beginning of 2023, but not towards the end, and I’ll explain why, is the new construction market for homes that were being marketed at a luxury price point, homes over $1million, but were built quickly with cheap materials and really did not have luxury finishes. Some of these homes have already seen up to a $200,000 decline from the original list price. But they really are just getting down to closer to what they are worth.
So why will these new construction homes not have a continued price decline towards the end of 2023? Because of the future lack of inventory. Right now, the new construction homes that are dropping in price the most are homes that are built, spec homes, or are getting built, but once these homes get sold off, an incredibly important factor for new construction home prices, will start to emerge. And that is that builders have been pulling up to 75% fewer building permits than they did during the same time as 2021. And we really didn’t even have enough new homes available then, either. I know of some builders who are not building any new single-family homes in 2023 and are focusing on multi-family. So, yes, there will be lower buyer demand in 2023 but, if there are very few new construction homes to choose from in 2023 and into 2024, then existing homes buyers won’t sell as much if they don’t have a new home to buy, and demand will become tighter on existing homes.
We all know that there is some serious manipulation of markets and rates going on right now across the board. The housing market is no exception. Just like the car market realized what a great profit they could make by limiting supply, and they are continuing that strategy by having up to 80% fewer new cars on their lots for 2023, builders realize that they have to completely restrict supply to keep prices up to meet lower demand and to turn a decent profit. And I’m not saying they are greedy business people or anything negative, just showing how inflation, cost of labor, cost of supplies, and cost of land is such that they can’t just build for less and sell for less. They literally have to sell for more money, or they won’t make much. So they will do that by keeping supply very low.
This is not 2010, where builders way, way overbuilt. So, then the fallout issue will be, when rates come down somewhat, maybe not until 2024, or who knows what the powers that be will manipulate, but if rates come down and prices have come down a bit, and there’s no inventory, then we have a 2020 housing market all over again. Which no one really wants. I would hope we can settle into a nice happy medium instead of living in a society that seems to be unsatiated unless we have massive pendulum swings from side to side to entertain us.
I do predict that once builders sell off current inventory, they will build at a much, much slower pace, and prices will stay higher than they should be for the pockets of most people, given the higher rates.
And then I actually see a certain micro market holding onto higher prices, and that is the one I mentioned before, the market that is desirable for cash retired buyers. Buyers who want the quality of a true custom home, one you can’t build in today’s market without a very high price. These homes have very low turnover rates as they are mostly owned by retirees already who are not going to be financially distressed and don’t want to move, and so the same, always slower, cycle of turnover on these homes will continue with the demand being higher as that population continues to move here to get away from politics in their current state.
I think that sellers of existing homes will get super excited about the spring market. I have heard many who took their homes off the market this winter and are expecting to get a higher price this spring. I think many, who are only selling to maximize on equity, will try to list high, just to test the market. So, I think that March will show an uptick in prices and inventory. But I don’t think it will take long to see those price drops again if sellers are willing to accept a reality check. I predict price cuts will begin again by June, maybe May depending on interest rates. However, people are still moving here, and buyers are watching and waiting. I predict that we will still have steady sales on homes that are priced correctly, especially in the right micro markets. And there will still be those sellers who, when they realize they can’t get what they wanted for their home, will just take it off the market, lessening the potential for higher inventory.
Unless there really is catastrophic job loss, I just don’t see a mechanism in 2023 for a wave of foreclosures or short sales. If short sales appear, it will be in that lower price point where people put less money down and had to sell the home for less than they owe, and that’s assuming they are forced to sell instead of just ride things out. Foreclosures take many, many months, if not years, to come up for sale to the public. So, there has only been a very slight increase in people defaulting on payments at this point, and there is a lot that distressed homeowners can do to delay the process, so it’s not realistic to say that 2023 will be full of foreclosures. I suppose that IF there were large job losses, that if distressed sellers were facing foreclosure, they could sell their home on the market for quite a bit less and still walk away with some equity, avoiding losing the home to the bank. So, again, that is a possibility IF there is significant financial distress, but we have to have much, much more inventory to have massive price decreases, and the lack of new construction inventory later in 2023 and into 2024 will play a big factor, along with sellers not wanting to give up a low interest rate for a higher one and along with rent being more money than most people’s mortgages. Of course, whatever happens in 2023 with our economy will certainly determine if we will see rising foreclosures in 2024.
We have gotten used to things moving so quickly in our world, but you know, it really is okay for things to move more slowly, maybe even better sometimes. So, while I do predict a continuation of lowering prices in most areas, except for a slight uptick in listing prices in early spring from over eager sellers, I think that we will still be pretty stagnant for all of 2023. I think we will see days on market increase, inventory will increase for a time, but if inventory doesn’t increase for a sustainable amount of time, then prices won’t drop to “crash” levels many people are hoping for.
The Boise housing market has some recalibrating to do for sure. But overpriced homes that finally sell when they drop $100,000 to the correct price range and then sell and leave the sellers walking away with a couple hundred thousand in equity still, that is not something I consider a crash.
And my two biggest concerns really are first, what will our housing market look like end of 2023-2024 when we have 75% fewer new construction homes coming to the market? Well, when I revisit this video in 2024, I guess we will know.
And second, if first time home buyers or home buyers who decided to sell and rent to wait and see, try to time the market to buy low with low rates…that they won’t be able to enter or re-enter the housing market. With so many developers and government entities being focused on building multifamily and massive apartment complexes, that doesn’t give me much faith that the powers that be expect that home prices will become affordable again anytime soon. Rent is going up and you know what the interest rate is on rent, 100%. Renting is paying off someone else’s mortgage, so that cost has to be factored in when someone is waiting it out to try to time the market. I really think that home ownership will be essential to having any type of personal wealth and security in the future, so as much as our interest rates and higher prices stink right now, if someone can afford it and is going to stay in the home for several years, than I hope people really consider the long-term future. Home prices may drop for a time, but with higher interest rates, we all know things aren’t going to get cheaper overall.
Okay, so that was a lot of information, and quite a bit more detailed than my 2022 predictions, but, as you know, a lot has changed in the Boise housing market since January of 2022. I bet I’ll say the same thing when I revisit this video in 2024. But what won’t change is that my team and I love helping you buy and sell your homes here, of course, but we also love consulting with you to make sure you are making the best decision for your personal situation. There is much, much more than just housing market data that goes into your decision to buy or sell a home, and people have to buy and sell homes no matter what the economy is doing.
I will have many more videos coming this year, I am getting support in place so I can get out one video a week, and I now have support to help with social media, so make sure you follow Summer Aston Real Estate on Instagram for more Boise information. Remember that I have tons of videos on my YouTube channel so subscribe and check them all out. Also, my website has blog posts, new videos, community information, and we are working on adding more guides and more information for you there. Oh, and in a few weeks, we will have a new 2023 relocation guide for you to download. Of course, I’ll make a video about that when it comes out, and anyone who already gets the newsletter will be emailed a copy of the new relocation guide…so if you want to be on the monthly newsletter list, just head over to the summerastonrealestate.com website to contact us. I don’t know if 2023 will be easier or better than the last couple of years, but I do know that we are all stronger and ready to make the year fantastic, and I hope you are too.
LINK TO GET BOISE MAP TOUR VIDEO: https://youtu.be/K-xWSra013U
LINK TO GET BOISE RELOCATION GUIDE: https://summerastonrealestate.com/relocation-guide/
LINK FOR EAGLE IDAHO AREA COMMUNITY GUIDE: https://summerastonrealestate.com/eagle-area-comparison-guide/
Pros and Cons of Living in Boise Idaho: https://youtu.be/U2kOhTZUvRQ
Buying New Construction Property in Boise Idaho: https://youtu.be/jq6TUD5TNfA
What’s the weather like in Boise Idaho: https://youtu.be/4eyPmZtgb-w
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