“Cooling demand slows home price growth” is the headline of Boise Regional Realtors’ June market report, and that is a trend across the nation as well.
“What these sellers are facing is a lesser (number) of buyers that are willing to meet their demands at these high prices. Many of these sellers are not getting tour requests on their homes the way they used to; they’re not getting offers the way that they used to,” described Jamison Lunnen, vice president of real estate operations for Homie. “And so what you see now…are price reductions. I think that will continue.”
“We’ve seen the buyer pool shrink due to higher mortgage rates and home prices,” Boise Regional Realtors stated in its June market report, the most recent report available.
So what’s next?
“(Mortgage rates) are probably going to bounce around between 5.25% and 5.75%…they’ll probably end the year somewhere close to 5%,” said Mark Vitner, managing director and senior economist with Wells Fargo, adding there is going to be a lot of uncertainty as to how the Federal Reserve (the Fed) is going to handle the roll off of mortgages of its balance sheet, a result of having bought a lot of mortgage-backed securities during the initial phases of the pandemic.
A look at the markets
“Cooling demand has given inventory a chance to catch up a bit, giving the remaining buyers more options,” Boise Regional Realtors stated in the June report, and this statement applies to Ada, Gem and Elmore counties.
After passing the $600,000 mark in May, the median sales price for Ada County homes dropped to $592,090 in June, which is 12.8% higher compared to the same month a year ago. There were 2,135 homes available for sale in the area at the end of June, which is a 192.9% increase from June 2021, and the highest inventory the organization has seen since September 2016.
Heading eastward across the state, “Idaho Falls (was) a buyer’s market in June, which means that the supply of homes is greater than the demand for homes,” realtor.com states. Up north, “inventory is growing,” the Coeur d’Alene Press reported in early June. “Multiple offers are no longer flying fast and furious on every new home on the market. People have stopped buying homes sight unseen, which has caught sellers by surprise.”
However, for Ada County and nearby counties, “Even with the welcome inventory gains, the months supply of inventory in June was 2.4 months. A ‘balanced’ market, or a market that does not favor buyers or sellers, is typically between 4-6 months supply,” according to Boise Regional Realtors.
Even though Boise is a market that has consistently seen housing inventory drop year over year in recent years, Lunnen expects sellers will drop prices to meet buyer demand, especially considering what is happening with mortgage rates.
“What you’re seeing is consumers are constricting their spending right now. And that constriction is leading to sellers feeling the crunch,” Lunnen said, describing those sellers range from needing to sell their home to those who came on the market just to see if they could extract a high amount of equity.
“I don’t expect there to be a drastic reduction…more of a normalization,” he added. “What comes up must come down; as the Fed raises rates, they’re expecting inflation to lower. And that also means that events, like those mortgage rates, will come down.”
Lunnen said he is expecting 4% to be the new normal.
“There’s going to be a period where the consumer has to reset their expectations,” he added. “The industry does this every seven to 10 years. And there’s a little bit of a correction.”
“Pending home sales declined 8.6% from May as escalating mortgage rates and housing prices impacted potential buyers,” the National Association of Realtors (NAR) reported in June. Existing home sales declined for the fifth straight month, down 5.4% from May. Homes were 80% more expensive in June 2022 than in June 2019.
The West experienced the largest monthly decline, NAR stated. Compared to the previous year, contract signings dropped by double digits in each region as pending sales in the West were down by nearly a third.
And, while properties remained on the market for a record low of 14 days, according to NAR, the inventory of unsold existing homes rose to 1.26 million by the end of June, or the equivalent of 3 months supply. The median existing-home sales price climbed 13.4% from one year ago to $416,000, which is a new record high.
International buyers purchased $59 billion worth of U.S. residential properties from April 2021–March 2022, up 8.5% from the previous year and breaking a three-year streak of declines, NAR also reported. The 98,600 existing homes sold — the lowest since NAR tracking began in 2009 — were down 7.9% from the previous year. In terms of overall dollar volume, rising foreign buyer purchase prices offset the annual decline in homes sold. The average ($598,200) and median ($366,100) purchase prices for international buyers were the highest ever recorded by NAR. China, Canada, India, Mexico and Brazil were the top five countries of origin by U.S. residential sales dollar volume. The top U.S. destinations for foreign buyers were Florida, California, Texas, Arizona, New York and North Carolina.
This rings true for Vitner.
“(In) the overall market, if there’s much of a break in prices, I think investors may come in and fill the void,” Vitner said. “You’ve got a lot of international buyers that are also interested in purchasing single-family homes.”
Vitner also said he expects international buyers will continue to invest in homes in California, which is one of the drivers of home sales in Idaho, particularly Boise.
“(Regarding) the latest GDP data, it looks like housing has slowed even more than what we had thought in the second quarter. And one of the things that will cool housing off in Boise is if folks in San Francisco, L.A. and Seattle…(and other) really big markets, if they suddenly have a little more difficulty selling their homes, then that would really slow the migration into Boise.”
However, in addition to an apparent backlog of demand for homes in Boise, “(there is) so much overseas buying of homes in California that I can’t imagine the market softening all that much,” Vitner said.
“But it does have a way of building on itself; and when people sense that things are slowing, they tend to hold back on purchasing in hopes of getting a better price,” he added.
What does this mean for the economy — including in Idaho?
Real estate is a major driver of the U.S. economy, accounting for $3.9 billion or nearly 17% of the Gross Domestic Product (GDP) in 2021, according to NAR. Nationwide, the organization estimates that each home sale at the median price generated about $113,000 of economic impact in 2021. NAR estimates that every home sale generates two jobs.
Idaho ranks eighth in the top 10 states with the highest income generated from a home sale in 2021; Hawaii ranked number one. Near Idaho’s placement were Colorado, Oregon and Washington.
The GDP data are expected to be revised in late September, according to Vitner, and he said he thinks the nation will see growth was a little bit stronger than was reported in the most recent numbers.
“But there’s still no question the economy is losing momentum,” he added, describing that people are growing a bit more concerned about their jobs and income.
“Home sales are likely to slow further,” Vitner said. “And we’re likely to see some price discounting.”
But it’s a little tougher call in Idaho, a state where the inventory of homes has been tight for so long, according to Vitner: “Even with the pullback, there seems to be a backlog of buyers that have been wanting to buy homes in Idaho, Boise in particular.”
What does this mean for realtors, others in industry?
When asked what he thinks is going to happen to the real estate industry, Lunnen said he expects there to be more disruptions and more alternative ways to buy and sell a home. Homie is a self-acclaimed disruptor of the industry, and that includes reducing or redistributing the traditional price of a real estate agent’s commission.
“As education comes into the market and the consumer realizes what their options are, where they can get a traditional amount of service for a non-traditional price, what you’re going to see is the percentage that is charged, eventually (will) start going down,” Lunnen said.
Lunnen also acknowledged that, today, many people know a real estate agent or are connected to one through family ties or friendship, and, if they know of someone who needs to buy or sell a home, they want to support the real estate agent that they know.
“People have been less worried about the amount of money they might spend to buy and sell a home, and today, as the economy constricts, as interest rates go up, the cost of living continues to go up, people will look more toward the ways they can save,” Lunnen said.
He also has advice for real estate agents; one piece is to communicate as much as possible, which will make the experience easier and more enjoyable for the consumer. And, a second piece is to share the wealth.
“I work with a company whose mission is to make the home selling and buying process as easy and affordable as possible for the consumer; for industry professionals, I would say try to do the same thing for your friends and family,” Lunnen said. “It’s an unprecedented time right now and home ownership is the American dream, right? Let’s share the wealth; let’s spread the equity; let’s be there for each other.”