Home sales, prices, mortgages, defaults up; rates down

Idaho real estate markets have not behaved as expected for an economic downturn. The recession triggered in 2008 by the collapse of the housing bubble and subprime mortgage failures caused a national plateau in depressed home sales that lasted well into 2011 despite abundant inventory.

To date, the current market doesn’t resemble the previous recession. For all of Idaho, the controlling factor remains the dismal amount of inventory for sale. The straightforward mechanics of not-enough supply have prevented prices from falling despite the downturn that started in March with the arrival of COVID-19 in the state.

Following two consecutive months of year-over-year declines, home sales in Ada County were up 3.4% in June 2020 compared with June of 2019. Pending sales, or properties with an accepted offer expected to close within 30-60 days, were also up 17.0% year-over-year.

Michelle Bailey, 2020 president of Boise Regional Realtors, explained the situation like this: “This rebound in closed and pending sales was due to pent-up buyer demand and the fact that our market was strong before the pandemic hit our region. While our local housing market may continue to be impacted by the ongoing COVID-19 crisis on some level or another, this uptick in sales and homes under contract is a good sign.”

According to BRR statistics, home prices increased in June with the overall median sales price reaching a new record high at $375,000. This was 6.3% higher than in June 2019 and beat the previous record of $374,900 in April 2020 by less than a percent. Prices continue to be driven by a lack of existing supply compared to demand, and more than one-third of all home sales represented by new construction.

“Inventory is needed across the board, but demand is especially high for existing homes,” Bailey remarked.

In its monthly real estate update, BRR commented that: “One way to measure the supply vs. demand relationship is by using the Months Supply of Inventory metric, which compares the number of sales (buyer demand) to available inventory (supply). A balanced market — not favoring buyers or sellers — is between 4-6 months (of inventory to sell). In June 2020, the overall months’ supply of inventory was at just 1.0 months — the lowest number we’ve seen since January 2016 when we began tracking MSI. Inventory is constricted even further in the existing/resale segment with only 0.6 months’ supply in June.”

Another factor driving sales and prices ever upwards in Idaho is the drop in mortgage rates. The average rate on 30-year fixed mortgages in the U.S. fell below 3% on July 16, the lowest rate in over 50 years according to Freddie Mac records, despite the wider-than-usual spread with 10-year Treasuries.

The effect of the Fed pumping trillions into markets has lowered consumer borrowing costs. Though mortgage applications initially fell at the start of the pandemic — along with everything else — they have since bounced back to levels not seen since the last housing boom. The loan applications include purchase-to-buy, refinancing and home equity loans.

“The number of applications for refinancing and purchase-to-buy has almost doubled for us,” said Jared Cook, regional sales manager for Zions Bank. “At the same time, credit has tightened because of the increased risks to the economy presented by the pandemic.”

The bottom line is that now is a good time to finance a new home purchase or refinance a current property for those with good credit and good financial standing.

While the historically low mortgage rates are fueling an upsurge in mortgage applications, not everything is looking bright. As unemployment benefits and mortgage forbearances expire, the number of delinquent loans is expected to increase. Signs of distress are already showing in recently released loan data.

According to the Mortgage Bankers Association, the U.S. mortgage delinquency rate rose to 7.76% in May. It was 6.45% in April and 3.39% in March.