Rising Rates, Rising Prices: Ada County’s Housing Market Defies the Odds
Posted by Lisa Kohl on Thursday, November 9th, 2023 at 5:56pm
Despite mortgage rates reaching multi-decade highs in October, home prices in Ada County continued to march higher, rising for the second consecutive month.
The median price of a single-family home in Ada County climbed to $539,990 last month, marking an 11.3% increase since January. After reaching a 2023 high in September, home prices in Canyon County fell to $400,000, up 1.2% year-to-date.
Throughout the spring and summer, high-priced properties with unique features and prime locations were frequent subjects of bidding wars. More affordably priced homes sold quickly—often within days. For many buyers, finding a move-in ready home under $500,000 became a significant challenge.
While it hasn’t been a great time to be a seller, particularly compared to 2021, it’s been pretty good.
It’s not that demand for homes hasn’t fallen, it has. Measured by total sales, demand is at the lowest level in more than a decade. October saw the lowest number of sales for that month in 13 years.
However, supply has contracted even more sharply than demand. In the Treasure Valley, there are currently 2,373 homes for sale, a 31% decrease from last November. Given the current sales pace, this is less than a 2.4-month supply of inventory, significantly lower than the 4–6 month supply typically considered a balanced market.
The decrease in demand, diminishing supply, and escalating home prices can all be attributed to the same cause: rising interest rates. The 30-year fixed mortgage rate has climbed steadily, from slightly above 6% in February to 7.76% during the week ending November 2.
As interest rates rise, increased borrowing costs lead to higher monthly payments and, typically, to lower home prices. However, this hasn't been the case recently—contrary to historical trends, higher mortgage rates have led to higher home prices.
Why is this time different?
Post-pandemic, mortgage rates hit record lows, with the average rate falling to 2.65% in January 2021. This led to a surge in home purchases and refinancing between 2020 and early 2022, effectively pulling future demand forward. Since then, rates have soared, rising faster and further than at any time in the previous 40 years.
As a result, 90% of homeowners have secured rates substantially lower than current ones. These homeowners are reluctant or financially unable to move if it means giving up those low rates, which reduces demand and severely limits the available supply.
This situation, combined with years of underbuilding, changing demographics, and corporate investors turning homes into rentals, creates a recipe for pricier homes.
It is not just the Treasure Valley. A widely recognized housing market index showed U.S. home prices hit a record high in August. Nationally, the supply is so low that the chief economist for the National Association of Realtors estimated supply would need to triple for U.S. home prices to cool.
A strong economy and near-record amounts of home equity have made rising interest rates less impactful than in past housing market cycles. Additionally, many older homeowners have minimal to no mortgage debt, insulating them from the “lock-in” effect of low rates.
In Ada County, the proportion of all home purchases made with cash increased to 28%, up from 25% the previous year. For properties over $1 million, all-cash deals surged to 45% of sales. Canyon County experienced a similar uptick.
Despite rising interest rates, a limited supply and low turnover of existing homes have done more to slow the market this year than the rising unaffordability from more expensive mortgages.
Yet, at some level, higher interest rates will have a more pronounced impact on home prices than low inventory.
While a historically large part of this year's demand has come from those making substantial down payments or all-cash purchases, a considerable portion of the market is still very dependent on financing.
Sales activity typically slows in November and December as winter weather and the holiday season deter homebuyers. This year is no exception.
Whether due to seasonal trends or the fact that mortgage rates rose to the highest level since 2000, demand slowed in October, prompting sellers to reduce prices.
More recently, mortgage rates have dipped in anticipation of the Federal Reserve pausing interest rate increases. If rates continue to fall, it could spur new demand in 2024, but it will do little to support prices in the next few months.
For buyers, the reduced competition from volatile mortgage rates and seasonal trends will likely create a unique opportunity before the year’s end.
Boise Real Estate Market Summary for October 2023
- Median list price: $534,450, up $27,450 (5.41%)
- Median sold price: $525,000, up $25,100 (5.02%)
- Average price per square foot: $310 (1.31%)
- Total home sales: 212 (down 33)
- Median days on market: 17 days (down 16)
- Available homes for sale: 2.04 month supply (down 0.33)
- 30-year mortgage rate: 7.62% (up 0.72)
Treasure Valley Housing Market by Area
- Ada County: $539,990, down $21,010 (-3.7%)
- Eagle: $839,900, down $50,100 (-5.6%)
- Garden City: $425,000 (*fewer than ten sales)
- Kuna: $485,367, up $19,155 (4.1%)
- Meridian: $518,131, down $40,674 (-7.3%)
- Star: $509,995, down $115,275 (-18.4%)
- Canyon County: $400,000, down $34,814 (-8%)
- Caldwell: $374,995, down $14,244 (-3.7%)
- Middleton: $484,445, down $145,455 (-23.1%)
- Nampa: $400,000, down $25,000 (-5.9%)
Lisa Kohl
Lisa carefully studies the local housing market to give her clients the edge when buying or selling a home in Idaho. We Know Boise is a full-service real estate team that combines our LOCAL expertise with traditional know-how to create exceptional results for each of our clients.
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Select information in this We Know Boise market report was obtained from the Intermountain MLS (IMLS) on November 8th, 2023, and is deemed reliable but not guaranteed. City data refers to single-family homes on less than one acre, while county data includes homesites of all sizes. Months of supply is calculated on a 12-month rolling average. Combining existing homes for sale with new construction is the best way to gauge current home prices and Boise housing market trends. New house prices can be more volatile and can make comparisons, particularly on a month-to-month basis, less reliable.
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