Jobs are everything to housing markets. There are essentially only three groups of people who purchase homes but do not have jobs: people with gray hair, blue hair or no hair (in other words, retired people).
The good news is that the Boise City-Nampa Metropolitan Statistical Area (MSA) is finally seeing some recovery in creating jobs, with 2,300 more jobs on hand at the end of February 2011 than at the end December in 2010. The bad news is that from January 2002 to today, more than 50,000 new residential dwelling units were permitted versus just 20,000 net additional jobs.
So in essence, for every net new added job in that period, 2.5 single-family homes, apartments or condominiums were built. That means that it’s going to take a while to work through the excess.
The good news is that housing sales are finally on their way back. Annualized home sales in Ada and Canyon counties (the total number of closed transactions in the prior 12 months) were just short of 10,000 in 2002. Sales peaked in May 2006 at an annual rate double that level (19,000 and change) and plunged downwards to 6,700 in May of 2009. Today that level has risen back to 9,000 – and is actually approaching what less than a decade ago was considered normal.
Prices, though, have had one heck of a roller coaster ride. After starting out in the low $120,000 range in 2002 (the average median home price for the past 12 months), prices peaked in 2007 at $210,000 and plunged back to $130,000 today. So, if you purchased a home prior to 2003, you’re doing okay. But if the home was purchased from 2004 through 2007, you likely paid a whole lot more than the property is worth today.
In Boise, as in all markets, the future trend in prices is preceded by the trend in the number of sales. While sales headed south in 2006, prices kept climbing into 2007. The reduced demand and huge construction of 2005 through 2007 battered an already tender market.
The good news now is that home sales are once again rising ¬- and this time not due to the $8,000 homebuyer tax credit we saw from September 2009 through June 2010 but rather from genuine and sustainable demand.
Even better news is that interest rates still remain highly attractive, and home prices are likely to commence an upward track soon. This may indeed be one of the best buying opportunities seen in more than a decade in the Boise market area.
The alternative to buying a home is to continue renting. A recent perusal of multifamily rental rates in 12 U.S. cities saw anticipated rent increases this year ranging from 2.7 percent (above even the rate of inflation) to almost 7 percent in others. Rents will continue to surge, home prices will once again increase, and interest rates will rise back to normal levels. And at that stage, we will all look back and ask ourselves how we missed this incredible buying opportunity.
And how long will that be? I’m guessing 18 to 24 months. But as all economists know, you can forecast a date of a market turn or the amount of change – but never both at the same time.
So I just broke that rule. Let’s talk in 18 months.
This article was written by Ted C. Jones, Ph.D., senior vice president and chief economist for Stewart Title Guaranty Co.