COVID-19 Starts to Affect Boise Real Estate Market With More To Come.
After a very strong March that was seemingly unaffected by the current global pandemic, the Boise real estate market shifted gears dramatically in April and I believe we can expect more to come. How long these changes take to fully manifest themselves, how serious they are, and how long they last in the Boise market, which is otherwise still fundamentally solid, is the million dollar question. After posting impressive numbers in March closed sales reversed course dramatically in April. We went from 995 sales in March (+10.9% year over year) to 843 in April (-17.4%). That is quite a swing for one month. Furthermore typically sales tend to ramp up in the Spring peaking in June or July but this year sales in April dropped over 15% from March. More ominous is the fact that pending sales, a good indicator of future sales trends, dropped 32.2% year over year. And the number of homes for sale (1551) was up 3.9%, something we haven’t seen much of in the last several years, and while inventories remain extremely low by historical standards so far, they inched up in April. We went from 1.4 months of inventory in March to 1.8 months in April. Expect that number to rise even further in the coming months, but we have a long way to go before it would be considered high (6+ months).
Prices, not surprisingly, have not yet really responded to the dramatic slow down in sales. It maybe 3-6 months before they catch up. How much they drop, or at least slow down the rate of increase, will depend on if dropping buyer demand is the primary reason for the slowdown in sales or if other factors are in play. For now the price train keeps rolling…The average price per square foot was up 9.6% in April to $194. This actually was a slight drop from the record of $195 in March but it is hard to say if that was COVID related or just a “normal” fluctuation. Meanwhile the average sales price was up 10.2% to $409K. This was also a drop from the $424K average in March but the March figure seems to have been a bit of an outlier when looking at the overall trends in the last 12 months.
SUMMARY BOISE (ADA COUNTY) MARKET STATS FOR APRIL 2020
*Does not include manufactured homes **see detailed graphs below for more information.
|Type||# Sold||% +/-||% of Total Sold||# For Sale||% +/-||% of Total For Sale||$/SF||% +/-||Average Sold Price||% +/-||Days on Market||% +/-||Months Inventory|
|Distressed (REO or Short Sale)||0||-100.0||0||3||+50.0||0.2||0||-100.0||0||-100.0||N/A||N/A||0|
Back to the million dollar question. While no one knows for sure how big a hit the Boise real estate market will take or how long it will last there are a few things we do know:
- Many Idahoans have lost their jobs either temporarily or permanently. While many of these were in the service and retail industries, so not necessarily current homeowners or active buyers, there are still significant numbers of people who will struggle to make their mortgages or who have shelved their plans to buy because of the economic disruptions caused by the pandemic. While there are some forbearance and/or mortgage relief programs in place we should expect default rates to rise. Matthew Gardner, Windermere’s chief economist, recently reported on forbearance and provides some good info for those who aren’t very familiar with the term. With more defaults will come more short sales and REO sales, something we haven’t seen in recent years. In fact I stopped including them in my report because they were basically non-existent after being as high as 50% of all sales during the Great Recession (2008-10). I added them back in this month to establish a baseline for the future. As you can see above, we had exactly zero distressed sales in April.
- Both income disruptions for potential buyers and wavering consumer confidence will likely drive demand down at least temporarily. Some buyers will be forced to retreat from the market while others may not be comfortable taking on a mortgage until we see how things pan out. Current homeowners that were considering trading up may also tap the brakes. On the flip side, in-migration could actually increase as COVID causes some in harder hit areas to pull the trigger on a move to Idaho, which at least so far has been relatively lightly affected. Also, if prices actually drop, expect some speculative buying by cash rich investors. And interest rates remain very low so even buyers that need to finance will find favorable terms with one major exception.
- For now Jumbo loans have dried up. Many banks simply have stopped doing them while others have changed their underwriting on these types of loans to all but effectively stop doing them. This will undoubtedly have an impact on the upper end of our market—basically everything over about $600K.
- This is not going to be a repeat of the Great Recession, of which the housing market was a root cause. This disruption has nothing to do with housing although clearly it will affect housing. Matthew Gardner, weighs in on this subject as well in another short video that you might find interesting.
- If we are able to continue the process of re-opening the economy that has already begun the disruption to the Boise real estate market should be relatively small and short lived because the foundation remains strong. That of course is a huge “if”. A second (or third) wave of infection that results in renewed shutdowns or a lengthier period of reduced or no income for many people will clearly have more significant impacts on housing.
- The construction industry locally has been relatively unaffected so far as construction was deemed “essential” and continued through the stay at home order. There have been some supply stream and workforce disruptions none the less but overall nothing major yet. However, some builders, anticipating at least a temporary drop in demand have paused and are being cautious about over building spec homes. My guess is as soon as they feel the worst is over they will resume building at full steam ahead.Please feel free to contact me with questions and comments and stay well and be safe.
Windermere Real Estate/Boise Valley
1412 W Idaho St.
Boise, ID 83702