Something’s Gotta Give

High interest rates, high prices, lowering inventory, lowering demand… what has been going on in the Boise housing market for September 2022?

Well, I can tell you one thing, all of these factors are pressuring each other without much leeway one way or the other, and something has got to give. The question is, which factor will give way first and when? 

So, what will give and when? I don’t think we can accurately answer that question with the evidence we have in the Boise housing market today, but we can begin to paint a picture as we follow the market through the next several months. So, contrary to what the media is saying, and I know many of you will get grumpy in the comments about this, but we are not seeing a “crash” in the typical sense of the word in the Boise housing market as of today, October 20, 2022. Many of the factors are there to set up a crash for sure, but there are two main factors, that I’ll discuss that aren’t in play for a crash right now, putting us at a stagnant state that I expect will continue for us through the winter, as our winter market always slows anyway. 

 But the reality is that the high interest rates, sellers not dropping prices, low inventory, and lower inventory on new construction, are all creating resistance against each other with not much give right now. Yes, our prices have lowered, and days on market have increased, and I’ll tell you more about that too, but not as much as they really need to make homes affordable for people needing a loan and the new interest rates. 

Interest Rates

Interest rates, as of today, are averaging at about 7.4% for a conventional loan. So of course, that has lessened buyer demand. The data says that new home sales are down 8% from August 2022 and 22% from last year at this time, and that existing home sales were down 6% from August 2022 and 36% last year at this time. So, this data is about a month behind from when interest rates were in the sixes. The data reflecting the new 20 year high on interest rates and on how that is affecting demand won’t show up until November, so be watching for that, but, no big surprise, it will be a decline as well. 

Home prices should be dropping like crazy so buyers can afford to buy, and homes will sell more quickly again, right? Don’t the sellers and builders want to sell their homes? 

Well, you can easily see on Zillow the home prices with huge price drops, upwards of $100,000. But the majority of these homes are way overpriced, so when they do sell, they sell more in line with market averages, still lower, but close to the averages. The data shows that our average sales price in Ada and Canyon counties combined in September of 2022 was about $554,000. That is 6% lower than August of 2022, but still 3% higher than September last year. I expect that our average home sales price will drop to below last year’s pricing in the next month or two. 

When you look at the individual cities in Ada and Canyon County, the month-over-month data is all over the board. Take a look at these screen shots from my latest Facebook and Instagram posts.  Of course, it’s month over month data, so it doesn’t create a whole picture like year over year data, but you can see that all the cities’ days on market increased to close to 30, except for Star, but some cities median sales prices decreased, some increased, some cities sold more homes month over month and others sold less. So, we aren’t seeing an all over across the board lowering of month over month sales prices right now. Maybe next month. We will see. 

And the days on market, which are still increasing, but even if we get back to about the 60-90 days on market time frame, that is what was normal for the Boise housing market for many years. So, in that aspect, our market is normalizing, so unless a seller really needs to sell fast, resetting their expectation that a home could take an average 60-90 days, even when priced and marketed right, helps them understand they may not need to have drastic price reductions just because they didn’t get an offer in 2 days. 

That brings me to the first thing that would indicate a big crash that we don’t have yet in the Boise housing market.

And that is – a large amount of highly motivated sellers, usually, financially distressed sellers, but also people who HAVE to move and have no other choice. Most sellers now have huge amounts of equity, and as of now, we haven’t seen a rise in income loss here, and most people have 30-year loans, so they won’t have a variable rate sneak up on them and cause them to sell. And many sellers are just testing the market, and if they don’t get what they want, they won’t sell. So, until we have more highly motivated sellers, and financially distressed sellers, we won’t see foreclosures and short sales, or price drops more than what a seller can bear. 

What about new construction in the Boise housing market?

Builders are dropping prices and offering incentives, too, they are pushing more to offer to buy down mortgage rates, as that will protect the comparable sales while helping the buyer be able to afford the home. Even though our home prices have been at an all-time high, with a 2.5% rate, people could afford them. So oftentimes, the affordability has more to do with rate than sales price. Now that the rate is over 7%, it is pretty expensive to buy that down to an affordable range, so builders will have to lower pricing more to adjust as well. 

However, that brings me to my second factor on why we aren’t seeing the big crash in the Boise housing market…

That is that the number of new housing units is still lower than what is needed for the population. Yes, demand has diminished due to affordability, so builders have to respond, but unlike 2008, builders did not seriously overbuild. Now even if a builder only has 10 homes to sell and they aren’t selling at all, that is a problem, of course. But an interesting scenario could unfold.

Nationally, construction on the new housing units is significantly down. Builders are being cautious and have slowed way down on new permits and new starts. Locally, our September building permits are down 58% from August of 2022 and 73% from this time last year. Add that to the fact that our inventory of existing homes is now decreasing again due to getting closer to winter, as well as sellers are unmotivated to sell and lose their 2.5% interest rates, we create another super low inventory situation. 

But, with high rates and high prices, demand will stay low. So yes, currently buyers have the upper hand, but they are having a hard time finding something they want as not much new is coming on the market, and when it does, it goes through the same song and dance of listing high, so no one wants to pay the price, and then buyers are waiting for the price drops or a motivated seller to accept their lower offer. 

In the long term though, having 73% fewer building permits out year over year will mean much less inventory in 2023 and early 2024. 

So, something’s gotta give to move the Boise housing market again. Move it back to a steady rate of inventory and sales or move it down to crash territory so all the investors just praying for a crash can snatch everything up. 

I am guessing the rates won’t be the first to give in – they are expected to rise into next year. 

Builders are giving a bit, but with significantly lower amount of building permits, eventually that creates less inventory and buyers have less to choose from.

Buyers won’t pay more than they have to, many are holding off, and cash buyers are wanting to offer much lower.

Sellers are taking homes off the market or pricing too high to see what they can get, or not even listing at all. 

So, who do you think will give in first? I am guessing it will be motivated sellers and builders that will have to give in to buyers first, but until there is more inventory and more financial stressors, they will be stuck in a stalemate until someone relents. 

So of course, I’ll keep you updated as we patiently endure the stand-off. If you are thinking of buying or selling in Boise, my team and I are happy to help. Please explore my YouTube channel for city tours and to learn tons about the Boise area.