What happens when high interest rates collide with high home prices? Not much…not much buying, not much selling, and a big market slow down…
I’m sure you’ve heard by now that interest rates are above 7% and are the highest they have been in 20 years, and home prices, while they’ve dropped since last year, haven’t dropped enough to offset the high rates. So, let’s dive into what effect that is having on the Boise housing market and a little bit of what home buyers and home sellers can expect with the Boise housing market this fall.
So first, let’s go over a few of the numbers that just came out from the Boise Regional Realtors for July of 2023. The median sales price sits at $540,000, which is 8.5% lower than last July, but only $5000 lower than last month. And as I’ve said in my past videos, while that does reflect home prices dropping somewhat, it is a larger reflection of which homes are selling, and that is the lower priced homes at the more affordable price points, bringing that median price down.
We will see median sales prices dropping as we head towards winter for a few reasons. One: home prices always come down a bit in the fall and winter as demand lessens. Two: if builders offer more incentives to move end of year inventory. Three: I expect the median and average sales prices to drop mostly due to the fact that as interest rates rise, affordability decreases, and so more people will be buying more homes at the lower price point, and there will be fewer sales above $600,000.
And there are several reasons why individual home prices aren’t falling all over the board, with the biggest reason being lack of inventory. So sure, in Jan of 2021 we had our lowest inventory of 269 homes in Ada County, and in Jul of 2007 we had the highest at 5198 homes.
In July of 2023, we were at 1469 with a 2.3-month supply of inventory, and last July, we actually had more inventory of about 2400 homes, so this July we have about 40% less inventory than last July, but this July, we also have about 22% fewer pending’s, showing that even though inventory is lower now than last year, buyer demand is also lower now than last year.
In fact, our existing home inventory is getting low enough that builder inventory now exceeds existing home inventory. But builders are being extremely cautious…remember if you watched my market update videos from the beginning of the year, builders were pulling significantly fewer building permits early 2023 to try to avoid having inventory sitting around this fall. So, while the builder inventory is outpacing existing homes, by no means should you expect a repeat of 2007 and have thousands of builder homes sitting there without sales this fall and winter. That doesn’t mean builders won’t be trying to sell and offer incentives, they are offering incentives and want to begin build jobs, they don’t really want to build specs and have inventory sitting around, so they are really focusing on build jobs once a customer orders them, and focusing incentive on things to help with the lock and cost of the interest rate over the life of the build job more than lowering prices. There are a few incentives on the spec homes, usually in the form of closing cost contribution.
Now I do say that with a caveat…not all builders. In fact, we are seeing quite a difference in what builders are offering, and I think that is really based on the building companies’ personal finances and business model and what they can tolerate. We certainly do have builders, mostly the larger companies like Toll Brothers or even more local, large companies like Boise Hunter who serve a higher price point and have had price reductions and are offering large incentives, but then we have others who are not budging much and just holding out for a buyer who can pay.
So, as I’ve said before, our existing home inventory is low because potential sellers don’t want to sell and give up a 3% rate for a rate over 7%…most could probably actually afford that with all the equity they have, but it’s still a hard pill to swallow. And as interest rates rise, if they continue to rise through the end of the year, then I think our inventory will lessen with even fewer people being willing to sell…which will keep home prices higher. So of course, we will have a rise in inventory as we always do at the end of August and things slow down anyways, and we will have the usual price reductions if a seller really needs to sell, but overall, I mean that home prices will not drastically drop through the end of the year and will stay high relative to affordability.
I think the Boise Housing Market will really just come to a very sluggish pace until either people accept the higher rates and figure out ways to work with it, or rates drop, or there is enough financial pressure for home prices to drop enough to outweigh the higher rates.
And so, you may be asking why do we still have buyers in the Boise housing market? Well people are still coming to Boise from out of state for a better way of life, and that is still the bulk of our buyers. And our biggest buyer market right now is the cash retiree buyers…they will still be trucking along and moving to Idaho for a better place to retire, and in fact, the homes they are looking for are in low supply and high demand and can still see multiple offers.
Our second biggest buyer in the Boise housing market is the first-time home buyers. Why would they be buying with these high rates? Well, because they don’t have as much competition from investors, and they know that if they buy a house they can stay in for several years, then they can refinance in the future and not have to deal with the bloodbath that will come if we ever have lower rates again. I mean it would really only take rates lowering back to the 5s to bring on the competition, and with the low inventory, it could be 2021 all over again. I know many, many real estate investors who sold out in 2021 and are just sitting, hoping for prices to drop enough so they swoop in and buy again…our first-time home buyers will never be able to compete with that if it happens.
So, it sounds horrible to say it is a good time to buy, but for some people, it really is. If you can afford the payment and are in it for the long haul, buying now in the Boise housing market and refinancing in the future will be so much better than trying to compete when we get lower rates, which will raise prices again anyways. So, it really is best if potential buyers focus on payment affordability right now and not just get stuck on the rate.
And if you are thinking about selling, well just be prepared, unless you have the type of home that appeals to the retirees, be prepared for it to be on the market longer…we are averaging about 25-30 days on market right now, be prepared to offer buyers some closing cost contribution to help buy down their rate, and usually when you sell, you become a buyer, so the same advice to buyers would apply to you when you are the buyer. It does stink to give up a low rate for a high rate, but if it makes sense for you to move now, and you have the equity, and you can afford the payment, then it could be a good move for you to do it now and refinance later rather than wait until rates drop and the competition begins again. And keep in mind that while you are going to get less for your house now than you would have in 2021, most of you sellers are sitting on huge amounts of equity that you can leverage for your benefit. You can even use some of it to buy down your rate if it makes sense.
One thing that I am seeing people start to do, people who would like to buy an investment property but don’t want to pay the high investment loan rate, is to turn their current home into the investment property, use the income from that rental agreement to help qualify for a newer home they like better, and then the rental income helps offset the new house payment from the higher rate. So, you get a better house and an investment property all at one time, get to keep the low rate on one house and get a lower, owner-occupied rate on the new house that you can refinance when rates drop.
Of course, my team and I are happy to consult with you on your options and see if this fall is a good time for you to buy or sell and discuss some options in case you feel stuck in your current house and trapped by the rates.
Helpful Boise, Idaho links for you!!!!
LINK TO GET OUR MONTHLY NEWSLETTER: https://summerastonrealestate.com/newsletter/
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/
The Summer Aston Real Estate Group is happy to help you buy or sell a home in the Boise Idaho area (also called the Treasure Valley).
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
