Surging Mortgage Rates: How They're Shaping the Future of Housing in the Treasure Valley

Treasure Valley Real Estate Market Update: Navigating Seasonal Shifts and Rising Interest Rates

Rising Interest Rates

In recent months, the Treasure Valley's real estate market has experienced a shift from the rapid price increases seen earlier this year. This adjustment can be attributed to a combination of factors, including the return of seasonal trends and the looming possibility of rising interest rates.

Between July and August, Ada County witnessed a decrease in the median price of single-family homes, dropping by $20,000 to reach $520,000. This decline can be attributed to the resurgence of typical seasonal patterns and variations in the types of properties sold during that period. Conversely, Canyon County experienced a slight increase, with the median price reaching $405,000.

Since the beginning of the year, home prices in Ada County have risen by 7.2%, while Canyon County has seen a 2.4% increase. However, it's important to note that prices in both counties remain 8% lower than they were in August 2022.

Following a brief slowdown last fall, the real estate market saw a resurgence in demand during the spring and summer months. Notably, entry-level and "right-sizing" buyers have been driving this demand, seeking newer, low-maintenance homes priced below $700,000.

Despite the upward trajectory of home prices in 2023, home sales have experienced a decline. The resurgence of mortgage rates above 7%, following a dip at the start of the year when three-quarters of homeowners had rates below 4%, has deterred many potential sellers from making a move this year.

Ironically, rising interest rates have had a greater impact on reducing supply rather than curbing demand. Currently, there are only 2,334 homes available for sale in Ada and Canyon Counties, fewer than during the same period in 2019. Furthermore, builders have responded to this limited supply by increasing construction, resulting in new homes accounting for 40% of all active listings, compared to the historical share of less than 20%.

At present, the housing market in Ada County has a 2.36-month supply, while Canyon County has a 2.19-month supply. Typically, economists consider a supply of 4 to 6 months as indicative of a balanced market. A supply of less than 4 months suggests a shortage of available properties, favoring buyers.

Traditionally, home prices tend to rise in the first half of the year and drop in the latter half, with many homeowners timing their listings accordingly. However, the pandemic disrupted this pattern by driving increased demand for homes throughout the year.

As we progress further into 2023, there seems to be a return to the historical seasonal pattern, which is expected to continue into the fall. Despite the limited supply, the impact of rising interest rates is likely to keep demand in check and prevent excessive price increases for the remainder of the year.

In August, the average 30-year fixed mortgage rate exceeded 7% for the first time in nearly a year. As homes typically go under contract 30 to 45 days before closing, August sales data primarily reflects purchase decisions made when rates were in the 6% range.

By the week ending September 7, the mortgage rate had reached 7.12%, leading to a decline in mortgage applications to a 27-year low due to rising homeownership costs.

Given these rising costs, many buyers are becoming less willing to compromise, avoiding high-priced properties requiring extensive updates or renovations. The 2023 housing market is primarily influenced by non-mandatory sellers, first-time buyers, and those least affected by rising interest rates, often making cash purchases.

Younger buyers are taking advantage of a strong job market, improved wages, and down payment assistance from family members. Meanwhile, the baby boomer demographic, which represents the largest group of buyers, has substantial cash reserves. In the Treasure Valley, one in four home sales involves an all-cash transaction.

Considering the growing population and long-term supply constraints, home price growth doesn't rely solely on historically low interest rates. However, more affordable financing would certainly be advantageous.

Predicting the direction of mortgage rates is notoriously challenging, even for experts. While earlier predictions estimated rates at around 5%, recent estimates from economists suggest rates could range from 6% to 8% by the end of the year. The variability in these forecasts highlights the inherent uncertainty in rate predictions.

Instead of trying to time the market based on rate predictions, it's advisable to focus on actions you can take, such as improving your credit score, saving for a down payment, and finding a home that aligns with your financial situation. Making informed decisions based on your unique circumstances will likely yield better results than attempting to anticipate market fluctuations.

Surging Mortgage Rates

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