Boise Housing Market Forecast 2021: Outlook & Trends

Posted by Lisa Kohl on Tuesday, December 15th, 2020 at 3:15pm

At the beginning of 2020, no one could have predicted that within months the world would be battling a once-in-a-lifetime pandemic, which would cripple both national and global economies. It was nearly inconceivable that local governments would be forced to limit or entirely shut down many business activities and that unemployment would rise to levels not seen since the Great Depression.

Just as no one could have predicted that national home sales would hit 14-year highs during this same time period, ringing in new price records in every major American city.

While it seems counterintuitive, what we’re seeing is two sides of the same coin. For better or worse, the roaring twenties have indeed arrived, and in Treasure Valley real estate at least, they’re not quieting down anytime soon.

One of the Strongest Housing Markets on Record

In 2020, uncertainty in their daily lives pushed many would-be sellers to hunker down and hold on to their homes. Meanwhile, potential homebuyers flooded the market, looking for more room for their families or a better work-from-home setup with increased urgency.

Both Ada and Canyon counties set and subsequently broke new median sales price records in 9 out of the 12 months. In November, the Ada County median home sales price hit a record $427,000 while Canyon County hit $325,000 – also a new record.

Unsurprisingly, the cities of Boise, Eagle, Meridian, and Nampa also hit new median sales records at the end of the year, thanks in part due to historically low inventory. We’re talking tens to hundreds of homes for sale in areas that should ideally have thousands of homes on the market. In each of these cities, homes spent a median of 4 or 5 days on the market before being snapped up.

So what can this tell us about the Treasure Valley housing market going into 2021?

Any forecast that wraps up something as complex as the housing market with a neat little bow should be viewed with a healthy dose of skepticism – this year more than ever. As we typically do, we're focusing on the significant trends already playing out in the local housing market that will have the largest impact on the months and years to come.

Boise Housing Market Forecast for 2021

The 2021 We Know Boise housing market forecast calls for home price appreciation to decline significantly from last year but remain above our long-term average.

Here’s the bad news for first-time homebuyers and others looking at entry-level price points: affordability will continue to decrease as mortgage rates level off and prices move higher.

There will be more homes for sale in 2021 than the previous year, as more resale properties enter the market. That said, inventory will still remain near record lows. In addition, demand will stay elevated during the first half of the year, as demographic trends and pent-up demand – particularly for properties below $500,000 – generate fierce competition among buyers.

Prices Will Continue to Stay High, Driven by Strong Demand

This cannot be stressed enough: Demand is incredibly high – higher than anything we have ever experienced in the Treasure Valley.

Frenzied buyer activity at the end of 2020, as evidenced by the continuous new sales price records we’ve seen, is a strong predictor of demand going into the first half of 2021.

Estimates show there are as many as 10 buyers for every available listing. Record-low mortgage rates have helped counteract higher prices, which has encouraged more buyers to keep looking. Ironically, that extra competition between buyers also helps drive up prices.

All of these factors combine to create a substantial amount of pent up demand going into the first half of next year.

Anecdotally, we’re also hearing potential buyers at all price points say that “2021 is going to be my year to buy.” Many other agents have reported that their buyers paused searching for a new home in 2020 because they became too frustrated with the lack of inventory or just decided that 2021 would be a more advantageous time to buy.

Supply Will Slowly Increase As 2021 Progresses

When coronavirus cases surged in the U.S. in March of 2020, many would-be sellers put their plans on hold. Locally, new spring and summer listings of resale properties declined by nearly one-third as these potential sellers thought twice about letting strangers into their homes.

For those who had been planning to downsize, that extra space suddenly didn't seem so bad once they were forced to stay at home (or once their empty nests were full again with returning college students).

As the year progressed, financial uncertainty driven in part by job losses or reduced incomes convinced even more potential sellers to sit tight. For some, refinancing may have made more sense than moving, at least for the time being.

However, our years of real estate experience has proven that once people make a decision to move, they are going to follow through at some point. And with news of multiple coronavirus vaccines becoming available in 2021, many of the fears that have gripped families – and the economy – for the last year will recede.

The top concern potential sellers had in March 2020 was related to their health as the coronavirus rapidly spread across the globe. For those planning to sell now, it doesn't make the top three.

More in Real Estate Markets:

September 8th, 2021

Inventory Grows, But Not Enough To Reign in Boise Home Prices

Some buyers are holding out hope that a wave of foreclosures will hit the market in 2021. It’s true that home loan delinquencies soared going into the second half of 2020. According to mortgage data firm Black Knight, 90-day delinquencies in Idaho jumped to 3.68% in September from 1.79% in January. Most of these local homeowners are sitting on a mountain of equity, meaning they can sell their property at a profit.

We believe that few will end up as true bank-owned foreclosures, but they will slowly make their way to market, adding to inventory.

In 2021, we believe that many of these homeowners – from empty nesters and those who considered downsizing, to those facing financial difficulty – are going to realize this is the perfect "trade down" market. Home prices may still be up substantially, but there’s profit to be gained from trading a larger, more expensive home in for a smaller, lower-priced property.

“Affordability” Won’t Magically Happen

More bad news for potential buyers: The market can remain unaffordable indefinitely. There are plenty of popular cities across the country that haven’t been “affordable” since the 1960-70s. In the Boise area, without a sudden, healthy influx of inventory, or a huge nosedive in buyer demand, we will continue to see home prices rise in 2021 (just at a slower pace than in 2020).

You hear Boise locals saying the market will go back to the days of yore – it has to! Firstly, no, it doesn’t have to. Secondly, the steady decline in mortgage rates over the last 40 years means the affordability these people reminisce about isn’t accurate.

When you factor in the higher mortgage rates of those bygone eras – a staggering 18.63% for a 30-year fixed rate in 1981, for instance – until about nine months ago, homes in the Boise metro area were more affordable than they were in the early ‘80s and most of the 2000s.

Imagine trying to run up a hill with a boulder on your back. Mortgage rates are like that boulder. The bigger the rock, the longer it will take, and the harder it will be for you to run up that hill (i.e., the harder it is for prices to rise). But with a small rock, you could sprint up the hill.

Similarly, when mortgage rates are lower, home prices have the freedom to bound higher and higher. But when rates begin to grow, it’s much harder for prices to climb at the clip we’ve been seeing.

Many economists expect mortgage rates to rise, but remain near record lows over the next couple of years as we continue to fight off a prolonged national recession. This creates very little added pressure to suppress home prices.

But if rates were to spike, even to the near 5% levels we saw in 2018, affordability would really plummet in the Treasure Valley. This could dampen home prices as the local market corrected itself without lowering the purchase cost to buyers.

Pandemic Increases Idaho Migration, Putting Upward Pressure on Home Prices

According to the U.S. Census data, for the third consecutive year, Idaho was one of the fastest-growing states in the nation. If you look back at demographic trends over the last ten years, it’s clear that we started the decade with a net increase in the over-60 set. In other words, our population trend was heavily driven by people who were mostly retired and could easily uproot to seek out a higher quality of life in their sunset years.

But more recently, the age of the typical out-of-state transplant has been trending in the 30s-50s. We’ve transitioned from a majority of retirees to millennials, those ready to launch their first business, and mid-career professionals.

Since the beginning of the pandemic, Idaho has had the largest net gain in population in the country (Business Insider estimated that 194% more people have moved into the state than left it since March 2020). This influx of new people brings with it an increased demand for housing.

This is because even though home prices are not as low as they once were, Idaho is still viewed as an affordable Western state. When you combine that affordability with our low crime rates, short commutes, and minimal crowding, it’s easy to understand why the Treasure Valley is becoming more popular with families and young professionals.

In fact, prior to last spring, the last thing holding us back were salaries for high-income professionals, especially in the technology sector. But many companies moved to virtual workspaces since the coronavirus pandemic hit, making an individual workers’ physical geography all but irrelevant. So even that barrier has been removed.

While home prices may not be as affordable as they once were, and we may no longer quite be considered an undiscovered paradise in the mountains, the influx of out-of-state individuals and families relocating to the Treasure Valley will continue in 2021 and beyond.

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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