Could Boise’s ‘insane’ home-sales market crash? Or just correct? What economists say
Just before the Great Recession in 2008, home prices in Ada County rose by nearly 18% a year.
Today, it’s even higher, 20.8%. Does that mean we’re headed for the same outcome? Will the market crash, bringing foreclosures, lower home values and fewer sales?
“Everybody’s wondering: Can it go this crazy and not correct?” Boise real estate agent Mike Turner asked in an April 9 video.
Two economists with expertise in the housing market don’t think a crash, or even a correction (generally defined as a 10% fall in prices), is likely. Even though prices have outstripped most ordinary Idahoans’ incomes, the demand for housing here remains just too strong.
The nationwide collapse in 2008, which hit Boise housing hard, was partially driven by shoddy lending practices, said Robert Spendlove, an economist with Zions Bank. Banks and other lenders approved mortgages for buyers who weren’t qualified, especially in the high-interest-rate subprime market.
“The housing bubble before the Great Recession was driven by investment firms and banks taking on too much risk and taking on those risky subprime loans,” Spendlove said by phone. “There was the emergence of adjustable-rate mortgages and interest-only mortgages. They would take those bad loans and sell them on the market and make the problem even worse.”
That led to the collapse of Lehman Brothers — the fourth-largest investment bank — and of Bear Stearns and AIG, Spendlove said. That led to the entire collapse of the market, he said.
“This time, it’s different,” he said. “We’re in a much better position. Banks and financial institutions are not over-leveraged like they were back then.”
A surge in foreclosures? Nope
One early sign that a crash might be on the way is a surge in foreclosures, Spendlove said. “We’re not seeing that,” he said.
Nationally, the foreclosure rate has been falling since August, says CoreLogic, a housing-data company. One reason is a pandemic moratorium on foreclosures of homes with federally backed mortgages, which affect about 70% of borrowers. Consumer protection groups are pushing to have the moratorium, which is set to expire in September, extended through the end of 2021.
Another difference is that in 2007 and 2008, home builders were building too many homes, far more than what was needed to meet demand, said Lawrence Yun, chief economist for the National Association of Realtors. As demand tanked, many of these new homes, along with ones that were repossessed, sat vacant.
“Nonetheless, today it feels like a bubble and frenzied buying activity with prices escalating quickly,” Yun said by phone. “Ideally, we would like to see more supply so that home values rise roughly in line with people’s income growth.”
In March, there were only 295 homes listed for sale in Ada County — 150 existing homes and 145 new ones. That’s only slightly higher than the record-low 269 homes for sale in January, according to the Intermountain Multiple Listing Service.
Home construction quadruples but demand still exceeds it
During the 12 months ending in November, 26,450 new and existing homes were sold in the Boise area, according to the U.S. Department of Housing and Urban Development. To meet current demand, an additional 18,750 new homes are needed, the agency said.
Home construction in the Treasure Valley has quadrupled, from fewer than 2,000 single-family homes, condominiums and townhouses annually from 2008 to 2011, to nearly 8,000 in each of the past two years, HUD said.
Apartment construction has also increased, with about 3,000 units permitted in 2019 and about 1,400 last year, HUD reported. An additional 5,200 units are needed, with 1,450 under construction at the end of 2020.
In March, the average house was on the market just 22 days before getting sold, half as long as a year ago.
That’s good news for today’s sellers and for other homeowners who may want to sell someday. Idaho homeowners gained an average of $48,500 in home equity from 2019 to 2020, according to another report by CoreLogic. That’s more than homeowners in any other state except California, where homeowners gained $55,000.
Idaho was affordable for a long time. No longer
People moving from California or other high-income states come to Boise, see a home listed for $500,000 and cheer, because that’s cheap compared with where they came from, Spendlove said. But for people who grew up here and are earning less, they’re being priced out of the market.
“Idaho housing affordability has been dropping pretty much since the end of the Great Recession,” he said. “Idaho had some of the most affordable housing options in the nation, but that’s no longer true, and that’s been the story since 2018.”
Idaho is just one of two states where there are more jobs than a year ago, when the coronavirus pandemic began. Idaho added 7,900 jobs, while Utah added 5,800, according to the U.S. Bureau of Labor Statistics. With the extra jobs comes an incentive for more people to move here.
And with 30,000 people moving to Idaho each year, many of them landing in Ada County, demand for housing is expected to outstrip supply for some time, Spendlove said.
Idaho still has ‘a recipe for explosive growth’ in home prices
“That’s like adding another city the size of Eagle every single year,” he said. “With this national trend of the government injecting cash (through stimulus payments to households) and reducing the market’s ability to deal with foreclosures along with low interest rates and the high migration which creates demand, that is a recipe for explosive growth in Idaho home prices.”
When the annual appreciation starts to fall, that could be a sign the housing market is weakening, Spendlove said.
“When that 20% increase starts to come down, it’s a sign that we’ve surpassed the ability to pay,” he said.
The median price for homes sold in Ada County in March was a record $467,325, according to the Intermountain Multiple Listing Service. That’s more than three times as much as the March 2011 median of $137,000.
The median price for existing homes jumped 35% from March 2020, the largest jump from March to March since 2007. The next-highest increase was 23.2% in 2013.
“It’s insane what’s going on,” Rick Gehrke, an agent with RE/Max Executives in Nampa who sells in both Ada and Canyon counties, said by phone.
He knows an agent who had a recent listing in Star and priced it $20,000 higher than a similar home that sold in that neighborhood a couple of months earlier for $769,000. The agent figured if the house didn’t sell for that in a week or two, they’d lower the price. It sold in 24 hours for $869,000.
“Holy cow,” he said.
Buyers look farther afield for lower prices
As prices continue to spike in Boise and Meridian, and to a lesser extent in Nampa and Caldwell — the Canyon County median in March was $386,000 — buyers are eyeing more distant areas.
“They don’t mind the drive to places like Marsing and Parma and Homedale, and they get better bang for their buck,” Gehrke said.
But Parma, in western Canyon County, saw just six homes sold in March, five existing and one new, for a median price of $348,250. The median price for homes in Owyhee County, where Marsing and Homedale are located, was $308,950.
Even places like Emmett, a 30-mile drive from Boise, have seen home and land prices increase substantially in recent years.
“I’ve got some property on the Payette River with seven lots, and four of them are already pending, and they’re like, $600,000 for five acres and no house,” said John Evans, co-owner of Evans Realty in Emmett.
The median sales price of the 41 homes sold in Gem County in March was $350,000, according to the multiple listing service. Ten years earlier, it was $102,000.
Low supply is also hampering Gem County, Evans said. Only 21 single-family homes were listed for sale in March, down from 41 in March 2020. But buyers are getting good value.
“When you move to Emmett, you’re getting more property for the price,” Evans said. “In Eagle, you’re getting a small lot. Over here, you’re getting an acre.”
This story was originally published April 15, 2021 at 4:00 AM.
