Is the Boise Market Going To Crash?

The market has shifted, and that’s a good thing.

It seems like on a daily basis, We get asked, "Is the housing market going to crash in Boise, Idaho?"

And since the real estate market has shifted in the Boise area, it is important to understand what the market is doing, especially if you are interested in buying or selling a home.

Demand and sales are headed back to pre-pandemic levels, which were some of the strongest in recent history. But, the shift has caused a great deal of confusion and uncertainty and it's important to see what the data is telling us.

HOUSING PRICE INCREASES

So, what’s the current national data telling us? Well, let’s do a real estate reality check. First, let’s talk about house prices.

House prices increased by 29% in 2020 and 18% in 2019. These are unprecedented numbers! But what caused the spike? Artificially low-interest rates, political reasons (people voting with their feet), and the ability for many people to work from home in large numbers.

Prices are still projected to be up 8% overall this year. And in 2023, prices are projected to be up 3-4%, which gets us back to the average increase for residential single-family homes the last 50 years.

SUPPLY AND DEMAND

One thing and one thing ONLY drives house prices: Supply and Demand. Any time there’s more supply of something than there is demand, the price goes down. Any time there’s more demand for something—a lot of buyers chasing a small supply of goods—the price goes up.

For example, if there’s a toilet paper shortage (remember that one?), prices will spike. If there’s a shortage of oil and gas because Washington has turned off the spicket, prices will spike (we’re still living this one!). Real estate is no different. When demand exceeds supply, house prices go up. For housing prices to go down, supply has to exceed demand.

Since we’ve had a shortage of homes for about the last two decades, plus the demand is high, the prices are therefore high. Because of this low supply and high demand, people have been willing to pay ridiculous amounts of money for homes—in many cases, way more than the appraisal price. This has caused people who weren’t even looking to sell their homes to be drawn into the market and become sellers.

Still, people are freaking out and saying, “it’s just like 2008. The market’s going to crash.”

Well, let’s take a closer look at the data.

Housing Shortage

In 2008, demand fell dramatically below supply. But currently, our supply of houses for sale is about 1/4 of what it was in 2007, and new housing starts (supply) is 1.38 million—35% lower than the 2.07 million in 2005. As you can see from the inventory and housing starts graphs below, any way you cut it, low used supply and low new supply equals low supply.

LUMBER SHORTAGE

On top of that, new housing got totally disrupted during the pandemic with all the supply chain issues. Factories shut down, causing a lumber shortage. Lumber tripled, came down, back up, and now has normalized at around $600 per 100 board feet. But overall, this has negatively affected building starts, leaving us with a shortage of new houses.

FROZEN FORECLOSURES

The government’s moratorium (a fancy word for freeze) on foreclosures during the pandemic is also driving the shortage. Banks stopped executing home foreclosures—essentially letting people live for free the last two years—and now there’s a pileup of homes to be foreclosed on. As the graph shows, we’re starting to see these foreclosures come back into the market. But it’s still not going to provide enough inventory to make up for the housing shortage, and here’s why . . .

HIGH DEMAND

Millennials have come of age—prime earning and home-buying age, that is. There are now 5 million more Millennials in their mid-30s than compared to 2006 when Generation X was in their mid-30s. Plus, in 2007 there were 116 million households in the U.S. compared to 128 million households in 2020. That’s 12 million more households wanting to own a home today. This makes for too many buyers chasing too few houses.

INVESTOR BUYERS

In 2007-2008 we had almost zero institutional investors in the market buying up houses. Today we've got these big investing conglomerates buying single-family homes like crazy. According to a report by the Harvard Joint Center for Housing, they bought 28% of the houses that were for sale in America in the first quarter of 2022. That’s up 19% year over year.

Of course, they’re not buying up homes in the problem cities. They’re buying in more appealing sunbelt cities like Atlanta, Jacksonville and Charlotte and avoiding places like Chicago, Minneapolis, and Portland where there’s lawlessness, high taxes, and Covid-limiting freedoms.

THE GREAT MIGRATION

And investors haven’t been the only ones seeking out better cities. The past two years, there’s also been a mass exodus of people across America moving out of undesirable political environments, tax environments and high-crime environments. We haven’t seen anything like this since the Dust Bowl. Big home sales in California and New York that turn into cash offers for twice the house in Texas or Tennessee have greatly affected the supply-demand curve in local markets.

INTEREST RATES

On top of all this chaos, it’s been a bit of a shock to our system to see interest rates rise. It feels like they’re at an all-time high, but in fact they’re just starting to normalize. We have to keep perspective and remember that in 2020 and 2021, interest rates were at an all-time low. We reached our all-time high in the ‘80s when rates averaged around 17%.

In 1981, mortgage interest rates went to 18% and there was no “Housing Crash,” no huge drop in prices. There weren't as many houses and some sellers used price to attract one of the few buyers, but the market as a whole just sat and waited. In 1984, houses were sold with fixed rates of 14%, and there was a line around the block to look at model homes. That line was made of people who waited on rates to come “down” from 18% to 14%, and even then, there was no “Housing Crash.” Supply and Demand set prices—nothing else. Not interest rates, not fear, and not politics.

When you add up all this low-supply, high-demand data from all these factors, it’s easy to see how people are feeling boxed out of the market. Especially when you added in the fact that inflation just hit 9.1% in June, the largest 12-month increase in 41 years. Budgets—and emotions—are maxed.

Yes, there are lots of things you can’t control, such as:

Interest rates
Economy
Lumber Prices
The Fed
Inflation
Recession
Investors
Gas Prices

But there’s one important thing you can control . . . YOU!

Oddly enough, we can actually say with accuracy that this is a great time to buy a house AND it is also a great time to sell a house—if YOU are ready.

If you’re looking to buy, make sure you’re financially able to do so your home is a blessing, not a curse. That means you should have a fully funded emergency fund saved (ideally 3-6 months of expenses saved). Also, you’ll also want to have a strong 20% down payment so you can avoid private mortgage insurance (PMI). If you're unable to do that, it’s okay to put down 3.5-10%. Just know that you’ll have to get PMI. And your payment should be no more than 25% of your take-home pay. This keeps you from buying too much house and allows you to enjoy your life without feeling so strapped.

If you’re looking to sell your home, get a professional real estate agent to help you. Don’t have a friend of a friend from Facebook or Uncle Larry who just got his license be responsible for your largest asset. In the economy we’re in, it’s not amateur hour. You really need a pro who’s done a lot of transactions in your area.

Bottom line: Life is not a snapshot, it’s a film strip. Don’t let the scariness of one moment cause you to do something desperate or greedy. Base your decisions on facts, not fear. If you’re in a position to buy or sell, don’t wait on the “Housing Market Crash” because it’s not coming.

IS 2022 A GOOD YEAR TO BUY A HOME?

The year 2022 could be a great year to buy a house—if you’re ready. It could also be a horrible time to buy if you’re not. Remember, don’t let what’s happening with the housing market make your decisions for you.

The things that really matter when buying a house are your personal finances and the season of life. No matter what’s happening in the market, you’re only ready to buy a house when you are ready.

WHAT DOES ALL THIS MEAN FOR HOME BUYERS IN 2022?

It looks like you’ll still need to bring your A-game if you want to buy the home of your dreams in this market. With more buyers than sellers, you’ll probably be up against some competition and high housing market prices.

Another downside: Signs are showing that the low inventory issue is going to hang around for a while.

And while homebuilders are confident they’ll do plenty of business in 2022, that doesn’t mean buying a newly built house will be easy for you. Rising lumber prices, supply shortages, and even government tariffs are all making it crazy hard for homebuilders to actually build enough houses to keep up with demand.

Translation: The pickings may be better than they were a few months ago, but the inventory (amount of available homes) is still slim when it comes to buying a house. That means you may have to give up some of your wants to get a house that has everything you need.

WHAT DOES ALL THIS MEAN FOR HOME SELLERS IN 2022?

Sellers out there can feel pretty good about selling their homes in 2022. If that’s you, you might want to put your house on the market sooner rather than later—while inventory is still low. (But again, only do that if you’re truly ready to sell your house. Don’t let the market be the deciding factor!)

When you decide to sell, keep in mind that there aren’t quite as many buyers in 2022 as there were in 2021, but there are still lots of people wanting a home.

So if you work with an experienced agent, you’ll be able to capitalize on home prices, navigate multiple offers, and find the right buyer. With an expert by your side, it’ll be even easier to sell your house at a great price this year.

If you are thinking of buying and or selling a home this year, let's talk. Our team of experienced agents will ask you the right questions and give you straightforward advice. We have no problem telling you to wait if that is the wisest thing to do.

WE WANT TO HEAR FROM YOU

If you have real estate questions or goals, we want to hear from you. You can respond by calling us today at (208) 501-8200 or simply book a FREE complimentary appointment via phone, zoom, or in person. To book your 15-minute conversation, click here.

We look forward to hearing from you!