Mike Brown Group

Ask a REALTOR® – Are We Experiencing a Housing Bubble?


Is This Real Estate Market a Housing Bubble?

You may have noticed that housing is scarce in the Treasure Valley. It’s not just here experiencing a boom in demand for homes as housing is in high order nationally.

With that unprecedented demand and a dearth of inventory, home prices have appreciated rapidly. In fact, a recent report by CoreLogic indicates that home values in Idaho have increased 25% since March of 2020. That figure leads the nation. In the last two years, some home values have increased by as much as 40% in the Boise real estate market. And it’s not just resale houses that are appreciating rapidly. New construction homes are also seeing prices jump not just from demand but also from materials costs.

The National Association of Homebuilders says, “skyrocketing lumber prices add nearly $36,000 to the price of a new home.” Lumber prices have tripled in the last year due to demand and lack of supply. Many plants shut down due to COVID-19, and production has never recovered to meet demand from construction interests, DIYer, and home remodelers’ businesses.

Other component shortages, materials tariffs (especially on Canadian lumber), and lack of skilled labor also drive prices higher in new homes.

At the recently concluded Parade of Homes, one builder lamented that he could not get lighting through his usual suppliers and had to resort to ordering fixtures online. Since he didn’t benefit from buying at a discount through his normal channels, his costs were more, which will be passed on to the consumer in the form of higher prices.

What’s Fueling Demand?

There are a variety of reasons why people are looking for housing.

Where’s the Housing Inventory?

As mentioned above, new construction can’t keep up with demand as materials and skilled labor are scarce. Would-be home sellers are on the sidelines for a variety of reasons, such as:

In a previous article, we outlined ten reasons people shouldn’t sell during a seller’s market that captures many reasons people aren’t selling right now.

This is a Repeat of 2007-2008, right?

People believe that what goes up must come down and that the housing bubble will burst, causing home values to crash. Unfortunately, the circumstances surrounding this housing bubble are not the same as in 2007 and 2008. Let’s take a closer look at why.

During that recession, mortgage lenders were handing out home loans like they were candy. Lenders had extremely lax rules when it came to lending, and people were getting loans with little to no money down and were attracted to adjustable-rate mortgages (ARMs) that saw interest rates explode once they matured.

As the market collapsed under these predatory lending practices, home values plummeted, and people found themselves upside down on their mortgages. Consequently, people could not afford their monthly mortgage payments and had to walk away from their houses. Homes wound up being foreclosed or sold as short sales, causing the prices to fall further.

Today, lenders are a lot more prudent in their lending practices, having high standards for people seeking loans. If you haven’t obtained a loan recently, there’s a night and day difference between today’s lending practices and those of 2007-2008.

Will the Housing Market Collapse?

Unlike 2007 and 2008, this housing market is driven by supply and demand reasons, not faulty lending. As long as demand remains strong and there’s a lack of available houses for purchase, home prices will continue to appreciate. Eventually, mortgage interest rates will rise, which will cause some people to leave the market due to affordability issues. The effects of the pandemic are beginning to subside, and people may be more willing to sell their homes.

Unfortunately, demand is expected to remain high for the Boise area for at least the next year. Even if mortgage interest rates tick upwards and more people make their homes available for sale, demand is still expected to outpace supply so that values will continue their ascent.

Also, as people from out of state continue to move to the area, current Idaho residents will have to compete with cash buyers and buyers who sold their homes for values more than what homes in Boise are going for currently.

Once demand starts to subside, the expectation is that home prices may come down a little, but not as drastically as what occurred during the 2007-2008 housing bubble. Perhaps a few percentage points or so, but that’s purely an educated guess. As we all know, circumstances and events may alter those prognostications.

The Last Word

So, are we experiencing a housing bubble? No, we’re not. We’re experiencing a hot seller’s real estate market here in Boise and nationally. Real estate is always going to be an excellent investment, especially in the long term. And since this market is being driven purely on a supply and demand basis, it is being controlled by a completely different set of circumstances than what happened in 2007 and 2008.

The sooner you’re able to buy real estate, the sooner you’ll be able to realize the gains as values continue to rise. As mentioned above, all indications are the Boise area will continue to be a hot real estate market, so home values are expected to climb, but we’re not expecting any sort of significant home value correction like we saw in 2007-2008. If you can buy Idaho real estate, there’s no time like the present to do so.

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