Real estate agents always say it’s a good time to sell, but this time might be better than most. That’s because home sales in the Treasure Valley, which have accelerated since the market bottomed out in 2008, could be slowing down.
The Valley market was on a hot streak in 2014 and 2015 that brokers and agents say is not sustainable. Stacie States, president of Keller Williams Realty Boise, said her office is training its 501 agents how to adjust to a slower market, both in terms of tempering client expectations and managing the agents’ personal finances.
An expected increase in the lending interest rate would hurt affordability, States said, and the national market is past due for its cyclical sales decrease. Other local experts point to indications of a sales slowdown on the horizon, or one that may be underway. Four brokers and agents interviewed by the Statesman agree that home sales could fall.
Nobody expects the Treasure Valley housing market to crash and burn like it did in 2007, when sales fell by a third in Ada County and 39 percent in Canyon County compared to the year before, and steep price declines followed. But prices could fall this time, too.
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“The economy has always been cyclical,” States said. “Unless history stops repeating itself, we will definitely see the market shift.”
WITH LISTINGS DOWN, INVENTORY IS LIMITED
Tara Heinz, a Boise-based Keller Williams buying agent, expects the fall in home sales will outpace any drop in home prices. That’s because inventory remains tight. Before the recession, builders flooded the market with new homes that sat unoccupied for months or years.
“It won’t be like the last downturn, when there were five listings for every buyer shopping,” she said. “Inventory isn’t skyrocketing, so it will stay kind of balanced.”
In Ada County, 2,512 homes were listed in June, half the number of listings in June 2008. New-home listings were down 34 percent.
Canyon County’s 1,209 total listings were down 55.6 percent compared with June 2008. Canyon’s 343 new-home listings were down 44 percent.
States said price changes will be tied to the economy rather than sales volume. She said home values have fallen between 10 percent and 15 percent in past cyclical national downturns, excluding the 30 percent decline during the housing crisis.
“While we do not have a crystal ball, we should prepare to see prices slip,” she said.
JUNE: SALES COOL
Jere Webb, an associate broker at Downs Realty in Eagle who packages and sells real estate statistics, said June’s local sales data opened eyes.
Year-over-year pending sales had increased each month of 2015, with 6 percent more homes going under contract in January, rising to a 34 percent year-over-year increase in May. In June, that fell to 25 percent. While that still means the market is strong compared to an already strong 2014, Webb believes the slowdown could continue.
“The market was hot,” Webb said. “Is 25 percent good? Yes. But it means sales for July and August are slowing down a bit. How much of a bit, we’ll soon see.”
In Canyon County, an 18 percent year-over-year increase in pending sales in May fell to 4 percent.
“One month does not make for a trend,” Webb said. “We’re not even talking a downturn. We’re talking the steam of the huge year we’re having has cooled. After the July numbers come out, we’ll make a little more sense of it.”
INTEREST RATE CONSTERNATION
The nation’s long era of low interest rates might not last much longer, either. Keller Williams predicted rising mortgage interest rates are on the way and will force some buyers out of the market.
During the height of the housing crisis, the Federal Reserve propped up the market by creating money that drove interest rates down. Rates for 30-year mortgages fell from 6 percent in 2008 to a record-low 3.35 percent in 2012. Housing prices fell from 2007 to 2011. Homebuyers could get more square footage than before the downtown or since the local rebound began in earnest in 2012.
But rates rose by about a point, to 4.34 percent, in April as the Fed began to curb its money creation. The average rate has fallen back to 3.98 percent, but many experts, including those at Keller Williams, expect it to rise to more than 5 percent once the Fed decides to boost interest rates. Expectations have grown that the Fed will do that before the year is out.
States doesn’t expect any severe rate increases before the 2016 presidential election. But even small increases will remove buyers from the market, she said.
Today, a buyer purchasing a home for $250,000 with a 30-year mortgage at 4 percent interest will pay $1,193.54 per month in principal and interest. A 1 percentage point rate increase to 5 percent would boost each payment by $148.51.
“Right now, people can afford homes they won’t be able to afford when rates increase,” States said.
Burned by the Great Recession, builders aren’t throwing up houses as fast as they did a decade ago. That helps their pricing power as it keeps the supply of homes limited.
Builders are smarter this time around, said Mike Turner, founder and owner of Front Street Brokers, an 18-agent office in Boise.
New-construction median prices in Ada County have lagged in each month of 2015 compared with the same months of 2014. That is partly because builders saw they were outpricing many buyers and started building smaller, more affordable homes, Turner said.
“Builders changed their product, offering some lower-priced homes,” Turner said. “That’s exactly what they needed to do because last year, they priced themselves too high, and sales slowed.”
‘A GOOD THING’
The slowdown “is a good thing,” Turner said. “The first half of the year was frenzied. That was making me nervous. Now that I see it slow down, it’s not as good for sellers and home builders, but hopefully we’re normalizing.”
Turner believes the downturn won’t last. The market will remain strong for the next five years, in part because commercial building is booming, he said.
“Look at Downtown Boise and all of the commercial building that’s going on and is coming in in the very near future,” he said. “That’s all momentum, and in turn, more people will want to move to this city.”
Heinz remains optimistic, too. She said any downturn in the Valley market will be padded by steady demand from out-of-state buyers. One in four of her clients is from out of state. Most sold homes elsewhere and bought in the Valley for less, Heinz said.
“Even if there’s a slowdown on buying, Boise is such an ideal place because of its cost of living, we will sustain a healthy market for some time if the national market goes down,” she said.