Is the Real Estate Market Doomed in Boise Idaho?

The real estate market in the Boise Treasure Valley area, certainly been undergoing a huge market shift recently, and we're going to cover all that and find out if the real estate market is doomed here in the Boise area, and we're going to get after that right now.

If you're thinking about relocating here and you're seeing what's going on in the market nationwide right now with rising interest rates, rising inflation, you might be a little bit scared and be putting the brakes on, which is completely understandable.

I just want to walk you through what's actually happening here on the ground in the Boise area, so that you can make an informed decision as to whether or not now is a good time to buy, or if you want to hold off for now and see what's happening.

First let's get after what's happening. Obviously we've got the war in Ukraine going on. That's definitely causing supply chain issues. And the continued effects of COVID, let's not overstate the war in Ukraine as far as having a major impact on that.

Certainly there's been a lot of issues resulting in inflation from COVID that's been going on for the last several years. From massive amounts of money being infused into the economy with all the stimulus spending.

We're starting to see the effects of that, of course, and as a result, very, very high inflation. We are starting to see some key prices come down, which is great. Gas prices at the moment are ticking down, probably will go back up, we'll see.

And then lumber products are starting to go down as well. That being said, the latest inflation news dropped and we hit 9.3% inflation for June and the producers price index was over 10%. That's a leading indicator of where consumer inflation is going to go CPI, which is likely going to drive higher, maybe hitting 10% soon.

That being said, interest rates have to rise in keeping with inflation to help keep it in check. I think at some point it's going to start reigning it in and hopefully the economy doesn't come down with it, but banks have to make money.

They are going to be lending at interest rates that are going to be higher than inflation. They're trying to catch up to it without completely stalling the economy. You've got multiple factors going on here with the Federal Reserve, raising interest rates, but also banks raising as well.

What's interesting, what happens when the Fed meets and raises interest rates, usually by the time that they've met, the mortgage market has already priced in the rising that perceived rise in interest rates.

Oftentimes if they raise interest rates, sometimes you'll actually see a little bit of a drop in interest rates because the market priced it in and the Fed is doing what's expected. It's kind of odd, a little counterintuitive, but oftentimes rates will actually rise before the Fed meets and then sometimes fall slightly after if the Fed does what they say they're going to do.

That being said, I do think interest rates are going to keep rising a bit and we'll see what kind of an impact that's going to have here on the Boise market. Right now we certainly are seeing a lot of price reductions in the Boise market.

There have been a lot of price reductions going on here in Boise, but also in other parts of the country as well. Right now in Boise, 63% of the homes on the market have had price reductions, but compared to other markets like in California, in San Diego, they've had over 40% of homes have a price reduction. 

This means that 40-60% of homes are getting a price reduction by SOME AMOUNT. NOT that they are dropping 40-60%. There's certainly some opportunity here to capitalize on buying if you're looking to buy right now and getting a deal.

It's a really interesting situation right now because there are still are hot homes that are selling super rapidly and over list price and in a very short timeframe. For the last several years, we have been seeing just an absolutely insane market, as I'm sure that you are aware of with home selling sometimes before they hit the market, or right over the weekend for hundreds of thousands of dollars over the list price.

That is certainly calming down, but any hot home is still going very, very rapidly, but any other home that's kind of more average or was overpriced is definitely having price reductions and starting to come down in price.

What's happening here is there's certainly an opportunity now, if you're looking to buy to get in on the market and that being said, we'll have to see where things kind of shake out. My personal opinion is that we will certainly see a correction. There is a certainly a market shift that is occurring right now.

Is this going to be like 2008? I really do not think so. 2008, the economics and the mortgage lending standards were completely different. You had people that were leading up to the run-up in 2008, early 2000 to 2008 that were getting mortgages that frankly had no business getting a mortgage.

And so what happened is people were getting these adjustable rate mortgages that were had balloon payments and people were figuring, "Hey, I'm going to buy a house. I'm going to make 50% on it in 2 years. And I'm going to go and sell it and make a ton of money."

Well, these balloon payments came due. They weren't able to sell their home because the economy started to shift and everyone started getting foreclosed on and everyone started losing their homes and it created this vicious, vicious cycle of taking the entire world economy down with it.

I know a guy, he jokes about how he was a manager at a theater. And he was making, I don't know, $30,000 a year or something. And he was able to get a $600,000 loan in California. And he just laughs, he's like, "me being the manager has meant, I scooped more popcorn than the other guy". He's like "I had no business getting a loan, but I got it". Now, he was okay. he weathered it. But that's just an example.

If they were giving loans out to anyone that could fog a mirror, essentially now it is completely different. The lending standards are so, so tight that it's much more difficult for folks to get loans because they want to make sure you have the capacity to pay the loan back over the long-term and not just give you the loan and turn around and default on it. And they got a foreclose, banks do not want to be holding properties at all.

There's way better now at making proper loans. That's going to stabilize the economy and the market here in Boise in particular as well. Now the other factor is that because of that and because of the appreciation that has occurred, a lot of folks have high high equity in their homes right now.

And that's going to prevent them from needing a fire sale, their home. They're not going to take massive, massive price reductions because they don't need to sell. They're not in a short sale situation. They're not for the most part, they're not needing to sell their home to get out from a bad mortgage.

And they have the equity in their home to kind of weather maybe some price reductions, but not massive price reductions that would be needed to sell a home.

The other thing too is because the super low interest rates that we had for such a long time, a lot of folks aren't going to want to sell their home and move into a much higher interest rate scenario. They're going to sell their home and then have to go buy another home.

And maybe they're at 2.75%, and then they're going to end up at 6% interest. Why would they do that? Unless they're just really looking to downsize or they have some need to get out of that home and get into a smaller, a bigger home, depending on what's happening in their situation.

Even though we do have a lot of inventory that's coming on the market right now, we're going to start seeing that slow down as you kind of hit that maximum capacity of the people that need to sell a house right now.

What's happening right now is you got people that are looking at the market and going, "oh my gosh, we're at the top of the market, we need to sell and get out", You're seeing this massive rise of inventory hitting. And then as a result, buyer demand is still strong, but there certainly has been a lot of buyers that have dropped out of the market because of the rising interest rate.

And there's a lot more supply. That's where I've seen everything, just ????? that's going to stabilize soon. And I think we'll start to stop seeing the price reductions.

The other thing too is institutional buyers. There's a lot of institutional buyers that have come into the market in the past few years. You've got, BlackRock's a big name that's out there. That's buying homes right now. You've got Opendoor, OfferPad and Zillow for a long time was doing it. They're not doing anymore.

You have a lot of institutional buyers that have come into the market and that's going to help stabilize the whole housing market as well because they're not going to sell. They've turned into these homes basically into permanent rentals. Someday, they might offload them, but probably not.

They'll probably maybe sell them to another hedge fund investors. That's a lot of homes that just will basically never come back on the market. That's going to be a permanent reduction in supply, and they're also going to be buying in a downturn.

When they see housing prices come down, they're going to be doing it. Warren Buffett says "they're going to be buying when everyone else is fearful". There's going to be a buyer pool to pick up these homes when they're cheaper.

Predictions, I don't like giving predictions. I don't have a crystal ball. Really don't know exactly where things are going. Anyone that tells you, they know where things are going, they're lying to you. They don't know.

What I'm about to say, just take it with a grain of salt. But here's what I think based on the analysis that I do on a regular basis and the folks that I sit in masterminds with, I do think there are going to be price reductions, overall market correction, overall of somewhere between 10 to 25% as interest rates rise.

I think that interest rates in the next year or so will start to fall again, once the Fed and the government and the powers that be realize we got to start cranking the economy back up. And I would say by next summer, that interest rates are going to fall again, and everything is going to get ramped up big time again.

And especially as people kind of put the pause potentially on relocating right now, as they kind of want to see what's happening, then everything's going to ramp up again, come next year. I think that there will be a correction. I don't think it will be that deep of a correction.

I think we're kind of in this transition period, and then going forward, it's going to really crank up again. Sometime in this next year, I would say is going to be a really good time to buy depending on your specific situation and get in without having to do all the crazy stuff that we were having to do for the past couple of years.

Things like waiving all your contingencies, your appraisal contingency, your inspection contingency, your loan contingency, coming in hundreds of thousands of dollars over list price. Those things you're not going to have to do as much or at all anymore.

There are so many homes right now that are getting offers accepted with the contingency of a home sale. Meaning you're getting your offer accepted contingent on you selling your home. That was just not happening for the last couple of years at all.

Any offer that ever came in that I was listing agent on or that I was making offers on for a client, they always were rejected, out of hand. No one was making contingent offers and getting them accepted. That's completely shifted now where buyers or sellers are willing to accept contingent offers.

Before, you were having to come in a hundred thousand dollars over list. Yeap, all the time, no problem, $50,000-$100,000  easy to get your offer accepted. You don't have to do that. In fact, now you can get your offers accepted with the seller, either a price reducing or coming in with seller credits.

They're buying down your interest rate for you. That's something that people don't realize you might come in at say 6% interest rate, but you can buy down that interest rate back down to 5%-4.5% through seller credits.

They're helping you buy down your interest rate. And all of a sudden, you're back to a really, really great payment that you would have had a few months ago, that you may not be able to get now without that seller credit buydown.

The seller can help you get a lower interest rate and get into a home. That's something that was not happening in the past. It's happening now. You can come in and get repair credits now. There's multiple ways to get into a home without having to give up so much of your personal money and being so strapped for cash that you can't actually do any things you want to do on the home once you move in. And it puts you in a better position, it keeps your emergency funds, all those things.

Right now there's a great window to buy. If that's what's best for you, if you're looking to relocate here, the Boise Treasure Valley area, then it may actually be a really great time to find, really the house that you're looking for instead of the house you just sort of have to have, so you can get your foot in the door.

Curtis Chism, Realtor
208-510-0427 | Mobile
boise@chismteam.com 
Chism Team | NRDS# SP56593
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