Are We Headed for a Boise Housing Bubble?

I meet a lot of people in my line of work. When people hear I’m a real estate agent one of the most common questions I get, "Is Boise in a real estate Bubble?" Considering local home prices have jumped over the last six years and memories of the great recession are still in the back of everyone’s mind, it doesn’t come as too much of a surprise.

There is a difference between a real estate slowdown and a housing bubble. So what is a bubble? “A run-up in housing prices fueled by demand, speculation and exuberance."

They start with high demand and limited supply which is the case with any rising market. But then, "Speculators enter the market, further driving demand. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices” (quotes from Investopedia.com)

Blue line represents Supply (number of homes for sale). Grey line is the median home price in Ada County.

The red line on the left tracks the supply of homes from Jan 2004 to July of 2006, the peak of home prices. Despite a substantial increase in the number of homes for sale over the two and a half year period, prices jumped $80,000.

The green line tracks Supply since prices bottomed out in January of 2011. Today, high demand coupled with a shrinking supply are driving prices higher, not the speculation we saw 14 years ago.

Speculation, fueled by bad loans, drove prices up artificially. Many of the purchases at that time were second, third or fourth properties. A good part of the financing was based on low or no down payment loans with a complete disregard for incomes and credit scores. Today, the majority of the demand is from real buyers who intend on living in the property. To get a home loan- a down payment, credit history, and income are required. Investors are making only a small part of real estate purchases.

When we saw prices peak ten years ago, real estate was much less affordable than it is now. In 2005 people were paying more for less. Today, for $1,000 a month (with 10% down at 3.90%) you can purchase a $236,000 home. In 2006 the average mortgage rate was 6.41%, that same $1,000 would allow for $178,000 home purchase.

In its simplest form, real estate market demand is driven by population. In Ada County, the population has increased by 25.27% from 2005 to 2016. In Meridian alone, the population grew by over 81% in the same timeframe. That is a lot of new demand.

In both the Ada and Canyon County real estate markets, home affordability is close to its long-term average. Low supply and high demand will continue to be the primary factors pushing prices higher. Include the Treasure Valley’s strong job growth and inbound migration and it’s the perfect recipe for higher prices.

Where are prices headed? The truth is no one really knows. If someone says otherwise, hold your nose and walk away quickly.

The best predictor of future price increases, or decreases, is the supply of homes for sale. Currently, we are averaging about 2 months’ worth. Four to six months is typically considered a balanced market. Unless that changes overnight we are looking at high single to double-digit prices increases over the next twelve months.

Over the last two years, we have been averaging 8% year-over-year median sales price growth. Historically, real estate appreciates at 3%-4% per year and we will return to those levels at some point.

“New Normal” is a term that gets used way too often. If anything, the new normal is we won’t continue to sell at a discount to other cities our size. We still have some of the lowest home prices in the Western US - median price, $362,700 (existing homes). The median home price in Ada County is $270,000. It's $317,122 in Colorado Springs, $334,437 Salt Lake County, $380,000 in Multnomah County (Portland), $630,000 King County (Seattle).

There are no signs that we are in any type of a real estate bubble. Price increases will slow down to a more sustainable level at some point (a good thing) and will even drop slightly. In the meantime, values can rise an additional 10 to 20 percent.

October 2017 Boise ID market summary:

• The median list price decreased to $249,250 (up 8.37% from 12 months ago)
• The median sold price decreased to $246,950 (up 7.39% from 12 months ago)
• Total home sales dropped to 458 (up from 432 12 months ago)
• Median days on market rose to 15 days (down one day from 12 months ago)
• Available homes for sale declined to a 1.41 months supply (down 9.45% from 12 months ago)
• 30-year mortgage rates declined to 3.90% (up from 3.47% 12 months ago)

Idaho Real Estate Markets in October

Lisa Kohl

Treasure Valley Realtor Lisa Kohl loves what she does. It shows in her attitude, in her work, and in the many reviews written by her past clients. 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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