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Misguided fears of a new housing bubble in Idaho

There are growing concerns around the country about the potential of another housing bubble. Home prices are rising too fast, some economists say, especially in areas like Boise. Median home prices for Ada County are showing a 33 percent increase in January 2013 compared to the same month last year. This far exceeds what most experts label as healthy growth.

I would suggest not getting too excited about these jumps in home price statistics. They are great for consumer confidence, but to put this into perspective, let me share a comment I received from Barbara in Boise. “I beg to differ with these recent stats,” said Barbara. “My $440,000 home that I purchased in May of 2011 just got appraised for $410,000, so I don’t understand where all these housing stats are coming from.” Many homeowners who are trying to sell or refinance are noticing this same issue. The positive housing statistics do not match their experiences with their own homes.

To understand this issue, we have to take into account foreclosures, which have negatively skewed the housing statistics for the last four years. The positive news of today is simply a correction to the previously distorted numbers. So what at first appear to be huge gains in home prices in Boise are predominantly a statistical price correction with little effect on selling prices.

Here is a breakdown of how this works.

Home prices are rising, but the housing industry follows the median home price to track housing prices. Home prices statistically have come up in Boise (more than 30 percent from the bottom), but that has little or no effect on many Boise homeowners’ ability to sell their homes.

For 2010 and 2011, roughly 50 percent of all home sales were distressed properties. Today about 25 percent of properties sold are distressed. This change is important, because foreclosures do not represent the true market.

Banks will price a home below the market value just so it will sell quickly. Here is how this skews the numbers. The median price of a nondistressed home in Ada County from 2009 through 2012 was $185,000, and the median home price of a foreclosure was $126,000 (a difference of 32 percent). With roughly 50 percent of the home sales being distressed sales in 2010-2011, the overall home price statistics were pulled down closer to the distressed sale average. When the percentage of distressed property sales dropped suddenly to roughly 25 percent of total sales, it did two things.

First, the overall home price average jumped closer to the nondistressed sale average, because now 75 percent of all sales are nondistressed. Second, the distressed sale average increased, because with such a large reduction in the supply of distressed properties on the market in 2012 (Boise metro has had a 90 percent decrease in the supply of bank-owned foreclosures and a 60 percent decrease in short sales on the market from the peak), the remaining few properties have become heavily sought-after. It is not uncommon to see five to 10 offers on a new bank-owned listing on the market, which causes a bidding war and pushes up the sale price. In 2012, the average sale price of a foreclosure was close to 1 percent above the average list price, due to the bidding wars.

With these two market changes, the overall home price statistic in Boise rose quickly in 2012, which produced year-over-year gains between 15 percent and 30 percent, depending on the month. Meanwhile, the average price of a nondistressed home in Boise changed very little over the last four years, which is why homeowners like Barbara have seen no positive change in their home appreciation.

With fewer foreclosures to distort the numbers, the housing stats are simply being skewed back to normal. This doesn’t mean we can all go out and sell our houses for more money. While that might not sound positive, it is an indication that we have little reason to now fear another housing bubble.

You see the biggest effect in the starter market. Boiseans with a home valued near or below the median price average, $185,000 for Ada County, will see a gain in what they can sell their home for today as compared to a year ago. However, homes priced well above the area average are not seeing a jump in what they can sell for.

The supply of homes has dropped by more than 40 percent since 2009, which is why the Boise market is so strong right now. But the declines in inventory have occurred primarily in homes priced at less than $250,000. Homes priced $400,000 and up have seen little reduction in inventory over the last four years. In contrast, the supply of homes priced at less than $150,000 is down more than 70 percent in the last two years.

Homeowners in the $100,000 to $200,000 price range have seen a spike in what their homes can sell for today. The lack of inventory mixed with greater demand has increased these home values more than 10 percent in the last year, while homes valued at more than $400,000 have seen little to no improvement from the recent statistical gains in area home prices.

Home price jumps like the ones reported in Boise are occurring in other markets around the country as well, which is helping to boost home prices nationally. However, these jumps have little to do with appreciation, and fearing another bubble at this point is premature at best.

Mike Turner is a senior agent and CEO of Front Street Brokers, and host of the Boise Real Estate Radio Show on 89.9 FM. Mike specializes in selling high-end residential homes in Idaho, and is widely known for his comprehensive knowledge of local market trends and opportunities.

About Mike Turner

3 comments

  1. Nick,
    There’s no reason other than extremely bad governance at the state level, that Idaho could not a be a compelling locational alternative to businesses leaving high cost, unionized states in the Midwest or on the Pacific. This would be that “rising tide that lifts all boats”, including real estate.

    But included in that ‘compelling alternative’ is not a backward state that doesn’t invest in education, has an massively onerous income tax & property tax code that subsidizes a major religion, legally prevents broad healthcare competition for all businesses (the ’94 AWP Act), or remains the sole western holdout preventing full home-rule for its towns, cities, and counties. No one wants to go to a place like that, purely for cheap labor.

  2. Bill,

    I believe that anyone that’s honest to themselves knows that once the easy money(ultra low rates) goes away because it can’t last, demand is going to have it’s head handed to itself again(2006-2011). Agents have been writing these articles that take them Twenty paragraphs to explain why a housing run up is justified, even during the last bubble. Wake up, the job market doesn’t justify what happening today(bubble people)!

  3. “Mike specializes in selling high-end residential homes in Idaho.” Obviously not to anyone with half a brain and who’d never in a million years become a legal resident (of high-tax, low-wage Idaho)…right? huh? huh? (ask all those “homeowners” in Blaine County)

    Meanwhile, RealtyTrac says “Idaho worst state to buy a foreclosure” (Jan. 2013). Have any of you realtor-dimwits ever connected the dots between Idaho’s state governance (in general), and how badly the state performs economically? Do realtors even understand that relationship?

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