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Will the Idaho Housing Market Crash?

Will the Idaho Housing Market Crash?

July 01, 2022

If you are looking to purchase your first home, the title of this post might have you drooling a little. On the other hand, if you are a seller, you might be in a hurry to sell while prices are so high. Well we aren’t “real estate experts”, but with so much happening in the economy right now, it’s hard not think things aren’t going to get a little shaken up in the housing market. So, without making any hard predictions, let’s go over what we do know, and the potential impact it could have on home prices.

Last month, the Federal Reserve(“Fed”) announced its largest interest rate increase since 1994. While the rate set by the Fed doesn’t directly affect mortgage rates, it does so indirectly through the banking system. The average 30 yr. fixed rate for a mortgage is now over 5.9% which is more than 2% higher than this time a year ago. For a $350,000 home, that difference can amount to over $100,000 more paid in interest over the life of the loan. The increase in borrowing costs naturally makes it so home buyers can afford less house, which can contribute to lower demand.

Another factor to consider is the fact that housing costs have outpaced wage growth in the state of Idaho by a large margin. In 2021, Idaho’s average wage gain was 2.4% while the average single family home cost increased by 33%. Not to mention the general increase in household costs caused by inflation over the last couple years. Even with some out of state transplants moving here with higher incomes, we don’t believe that rate of increase is sustainable forever. Many new homebuyers have likely been priced out of the market, which would mean even lower demand.

The last thing we will mention with the housing market is the supply of new homes being built. The number of building permits in Idaho increased by 22% between 2019 and 2021 with builders hoping to capitalize on the hot housing market. Increase in new home supply can help reduce costs if it’s enough to catch up with demand. So far this increase in new construction hasn’t been enough to cool off the market by itself, but it could play a role in the next few years.

As we wrap up our thoughts on the market, it’s good to remember the basics of economics. As the number of people in the market to a buy a product decreases, the price tends to decrease as well. In addition, if the amount of that available product increases there will be additional pressure to lower prices. These factors seem to be in play right now in the U.S. housing market and especially in the state of Idaho.

As far as the exact impact that these pressures will have on home prices in your area, we don’t know. Some areas like Boise will probably have more dramatic changes than others, but we believe Idaho housing in general will start to settle if not outright decline. If you already own a home and have seen its value balloon over the past couple of years, do you know how it’s impacted your net worth? Would you like some guidance on how to plan for your financial future in these uncertain times? Contact us today to see how we can provide value to your financial plan.


 The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. No investment strategy assures a profit or protects against loss.