Is the red-hot housing market finally starting to cool down?

After over a year of record-breaking price increases and record-breaking low inventory, it almost seems like there is no new news in Idaho residential real estate.

More record-breaking price increases

Once again, the median home price in Ada County has set a new record of $523,250 in May, which is an increase of 8.7% from just the month before, according to the latest number released by the Boise Regional Realtors (BRR). Surprisingly, the Federal Reserve reported that the median home price for the state of Idaho for May was $524,999, actually just a bit higher than Ada County.

BRR also reported in its May update that the median price of new home construction had also set a new record of $544,986, which is an apoplexy-inducing increase of 16.0% from the previous record of $469,900 in April 2021. BRR attributed part of the steep increase to the rising cost of materials: “Due to rapid increases in material costs — especially lumber — coupled with supply chain disruptions, not only are new construction homes more expensive, some builders have held back available inventory until they are closer to delivery so they can price the property based on final materials costs.”

Has a lumber bubble popped?

The price of lumber peaked on May 7 at $1670.50 per thousand board feet according to the lumber futures commodity tracker at Nasdaq. Since then, lumber futures have fallen by 40.3% to close at $996.20 on June 14, just a few dollars more than prices in September last year. According to the Bloomberg financial news, lumber futures saw their largest single-week decline in the second week of June.

Bloomberg reported that the decline in price was due to an increase in supply: U.S. lumber production is up 5% compared to this time last year and with another increase of 5% is in the works. Added to this is a slowdown in demand nationally as some builders have slowed construction due to price and supply chain issues.

Given the extreme demand and anemic supply of homes in Idaho, whether the decrease in lumber prices will affect home prices is anyone’s best guess.

Fannie Mae’s falling confidence index

Another factor may begin to slow down the runaway home price increases, and that’s buyer confidence.  The latest Fannie Mae Home Purchase Sentiment Index, released on June 7, reported: “For the second consecutive month, consumers…reported a significantly more pessimistic view of homebuying conditions; on net, that component fell to an all-time survey low, with only 35% of respondents believing it’s a good time to buy a home, down from 53% in March.” Fannie Mae also stated that consumers who believe it is a bad time to be a homebuyer increased to 56% from 48%.

“Consumers appear to be acutely aware of higher home prices and the low supply of homes, the two reasons cited most frequently for that particular sentiment,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “However, despite the challenging buying conditions, consumers do appear more intent to purchase on their next move, a preference that may be supported by the expectation of continued low mortgage rates, as well as the elevated savings rate during the pandemic, which may have allowed many to afford a down payment,” Duncan said.

The percentage of Fannie Mae respondents who say home prices will go up in the next 12 months decreased from 49% to 47%, while the percentage who say home prices will go down remained unchanged at 17%. Those who said home prices will stay the same increased from 27% to 29%, though most probably aren’t trying to buy a house in Idaho, where prices are not only going up, the increases are accelerating, according to Zions Bank.

The low interest rates on mortgages right now are part of the demand equation, a topic that has not seen much discussion outside of the mortgage business. Applications for mortgages to purchase have declined every week since the fourth week of May, according to the Mortgage Bankers Association. Whether this trend is just a momentary blip or a signal that housing market is starting to slow is something that only time will tell. The arrival of an affordability wall to slow demand will continue to be delayed so long as interest rates on mortgages stay at their current record lows.