It is hot in Boise, Idaho, and the Boise housing market? Well, it’s a bit of a hot mess right now too! So, let’s all just cool off a little and talk through what is going on in our housing market and find out how this hot mess leading to a Boise housing market cool down will affect you.
If you want the general market overview, you can check out my past few blog videos where I dig specifically into the Boise housing market for buyers and sellers, but in this video, I’m going to go over answers to the questions I am getting daily now- like what’s happening in new construction? How much are prices really dropping? What’s going on with interest rates? Should you rent to wait things out? And I’m going to discuss one key indicator of data that many people are overlooking right now.
There’s a wide variety of information today about the Boise housing market, so grab a cool drink (I made some passion fruit iced tea), relax for a minute, and let’s cool down while we dig into this hot mess.
First, New Construction in the Boise Housing Market
If you come to visit, you’ll notice new homes going up everywhere, especially all around the outskirts of town. From driving around it doesn’t look like it, but home builders here are pulling back on the number of starts for single family new construction. They are trying to adjust to the housing market shift. Whereas last year we still had long waiting lists for some developments, this year we’ve got builder’s sales agents calling us and telling us their incentives and asking us to bring our buyers over.
Builders are trying not to reduce home prices but offer incentives instead – they want to try to protect those who are under contract at higher prices and keep the home valuations up. Most of the incentives offered right now are centered around giving credits for long rate locks and rate buy-downs, as interest rates rising over the course of a long build job are a huge concern for non-cash buyers.
Builders who are selling spec, or pre-finished homes actually have a lot to offer right now over existing home sellers who are emotional about the process and are having a hard time wrapping their heads around the new Boise housing market conditions. Builders are willing to offer you credit to help with whatever your hang up is on pulling the trigger, something that’s not easy to find in a seller of an existing home.
Builders who are building from the ground up are having a much harder time overcoming people’s fear that the house won’t be worth what they paid for it by the time they close a year from now. And to protect the builder, many builders have put promissory notes into place that basically say that if you back out over the course of the build job, you not only lose your earnest money, but you agree to pay them even more money. But is it correct to assume the home won’t be worth what you paid for it a year from now? We will circle back around to that question in a few minutes.
Builders are offering anywhere from $7500 up to $30,000 in incentives right now, so yes, new construction is feeling the pinch of a changing market and we will continue to see a give and take of incentives, price reductions, or both until things settle. So, if you’re going to be in the market to purchase a home anyways, new construction options are certainly worth a look.
One thing I want to note here, though, is that new construction starts on multi-family units, like townhomes and apartments that are intended to be rentals, are up quite a bit. This tells me that whoever is backing these large projects expects our housing market to continue to be unaffordable for many as they are preparing for many more renters in the future. This is just one indicator that while the Boise housing market may be cooling and shifting for now, either interest rates will go up in the future to effect affordability, or prices, or inflation, or all 3….either way, it’s a reason I get concerned when people say they want to wait to buy until the market bottoms out. I’m not sure that overall affordability of housing will get much better in the future, I mean prices could go down, sure, but there are a lot of other things at play into someone being able to afford a house.
Which brings me to the question – Should you rent right now and wait it out?
This is a toughie, and of course it depends on your personal situation. I do generally agree with the statement that you don’t wait to buy real estate, you buy it and then wait. Anyone who’s been a longtime homeowner knows you just stay in your home through the cycles and the value of your home only becomes a problem if you need to sell and either the value is down at that time, or you overextended your debts against your equity.
With all of our volatility in the Boise housing market right now, waiting to buy could be the right move for some people. If you are buying, you do need to plan to stay in your home at least 5 years and make sure you aren’t overextending yourself to buy. But waiting through this winter to see where our market heads could be a good idea for first time buyers…as long as their rent isn’t rising and as long as the interest rates don’t go up too much by next spring.
And generally, people that are historically homeowners who are choosing to sell while they can maximize on equity and rent for a while to try to time buying a home at a lower cost…that is risky as we have so many factors at play right now, and then the financial burden is shifted to you paying high rents while you wait for something that may or may not happen.
Well, isn’t it already happening? you are all asking. Aren’t we already having big price drops?
Yes, we are, but it doesn’t indicate a massive crash. Even though you see big price drops online, what you can’t see is the data showing that those homes are way overpriced. Now when they sell, they are selling for less, but our market dropped 1.6% from May to June, and I expect it will depreciate a bit more from June to July…in the 2% range. We look at the final sales prices in relation to the previous month’s final sales price to see the percentage we’ve gone down. We don’t act like Zillow and see that everyone who overpriced dropped their home prices $70,000 so our market has suddenly lost 30% in value. That’s just not correct. It just means sellers were way overshooting things.
But let me tell you what else has increased in the last week.
This is a new number I’m going to be following, and I haven’t heard anyone talk about it yet. I think this number may help us determine what may happen this fall and winter, and that is the number of expired and cancelled homes. Expired homes didn’t sell in the time a contract specified, and canceled homes means a seller canceled the listing agreement and took their home off the market.
So, the first week of July, in Ada and Canyon Counties combined, there were a total of 130 expired and cancelled. 2nd week, there were 120, 3rd week, there were 116, and just last week there were 145.
Why do I care about this number, and why should you? Well in the pandemic pandemonium, it was very, very rare to see any expired or cancelled homes. Obviously, they were all selling fast, and people were getting lots of money for their homes. In the crash of 2008, initially, it was also rare to see expired or canceled homes…why? Because people HAD to sell. They had financial issues and they absolutely had to sell. Of course, if they couldn’t sell and it went into foreclosure, then the listing would be cancelled until the bank took over. But because they had to sell, they didn’t have the leisure of taking the home off the market because they didn’t get what they wanted like many sellers do right now. And so, inventory went up and up…
Well, if this increase in expired and canceled listings continues, as I expect it will into the fall, then our inventory goes down, and prices only get extreme drops on those who really need to sell.
And this is also where the Boise housing market is a real hot mess:
Buyers trying to figure out what to pay for a home, and sellers trying to figure out how to price a home. Those sellers who don’t really have to sell can hold their price and hope for the best, not a great strategy to be sure, but they can, and then if they don’t get what they want, they cancel the listing. Those sellers who have to sell, and let me tell you, right now, most have to sell because they purchased another home or are building a home, NOT for financial stressors. But, because they all have so much equity right now, they can drop their price by $70,000 or something and then immediately make all the other homes that are for sale in the neighborhood look like a rip-off. And when they do huge price drops, guess what? they sell quickly and leave the non-motivated sellers to quietly take their home off the market with their tail between their legs but their equity still intact. So, this is skewing all of our data as the homes that sell will be those very motivated sellers.
So, onto our overall key take aways of the Boise housing market picture as of today, August 13, 2022
Many home prices are dropping, many home prices are holding.
Our overall housing market is depreciating, but by about 2% for this month, NOT the numbers the preachers of fear report.
Interest rates, for the last few weeks, have calmed and held on average between 5-5.5% and this is a manageable rate for many people. Interest rates are predicted to rise somewhat through the end of the year, possibly offsetting any price reductions, depending on the ratios. But then on Friday, some new numbers on GDP, and a few other key items, indicated that interest rates may drop back to the high 4s and stay there, so we will just watch that one.
Expired and cancelled listings are on the rise, as well as fewer homes are coming on the market as we head into the school year, so that adds to my last month’s prediction of a period of stagnation in our housing market in the fall and winter, with lower inventory, possibly higher rates, and people who don’t really have to sell hanging on to higher prices. It may also lead to data looking more like a housing crash if only the homes with major price reductions are selling, but once we have the selloff of our summer inventory, I think things will settle to new valuations in the fall and winter.
If you are a renter and considering renting longer when you can buy, or if you are a homeowner considering selling to rent, please do so with extreme caution, and please reach out to us to discuss our actual market data and not make your decision based on fear. Everyone has to have a place to live and remember that real estate is a long-term investment in your future financial security. Affordability in the future may still get more unattainable, even if home prices come down more.
And if you’re thinking of buying a home, buying now does have the benefit of you being able to negotiate and have a say in the outcome. If you’re thinking of selling, you can still maximize on your equity if you make sure you hire an agent who is checking the home value data daily and you are willing to respond to that data accordingly. Buyers expect to get a deal now or they won’t even offer.
So, we will continue to see this hot mess in the Boise Housing Market for at least a few more months, but I hope you enjoyed your cool drink and break from the heat as much as I did. Please reach out to us at summerastonrealestate.com if you are buying or selling a home in the Boise area and we are happy to help. You can get lots of helpful resources at the website, sign up for a home search, and you can also follow us on Instagram for more real estate tips and info about the Boise housing market. Keep the faith, my friends (sip) I’ll see you next time.
