The sky is not falling and I would argue that our real estate market has been correcting for some time. We have made considerable progress toward reaching a finished housing equilibrium. Irrespective of the sub-prime meltdown and resulting trauma to investment banks, our housing market is contrarily driven by the fundamentals of supply and demand.
The peak of the oversupply in new house stock was in June of 2007 when we had 2,641 units available in the Treasure Valley (Canyon and Ada counties). As of the end of February, it stood at 1,738 units for a 34 percent reduction in new housing stock from the peak. In fact, we have not seen such a low level of new inventory since April 2006, which predates the surge in inventory. This indicates the excess supply is diminishing nicely.
Another variable that could affect our inventory pool of finished homes is the area's foreclosure rate. Goodness knows we have been inundated with bad news about the impending catastrophe. However, much of that data we see in the media is collected by national entities that collect information on foreclosures and in doing so count every document filed as a foreclosure. Yet, sometimes property owners salvage the property from foreclosure for a time and then fall back again into foreclosure. The result of this data collection technique is that instead of measuring the number of foreclosures it measures the number of filings. Data from the Federal Deposit Insurance Corporation (FDIC) gauges actual property foreclosures in the state of Idaho, not the number of filings. Their information indicates that Idaho is rolling within the range of the last few years and we are in much better condition than the nation as a whole. The FDIC data demonstrates the delinquency and charge-off rate for Idaho compared with the nation and shows that our rates have been rising, but within an historic margin of variance.
If you are a prospective home buyer and you think that foreclosures will add significantly to the supply of inventory, I would argue that the likelihood of that is small. History has shown that national recessions drive people to our productive, beautiful surroundings and quality lifestyle. If you were unemployed and/or tired of bigger city crime, smog and alienation where would you look to live? Perhaps in a city with mountains, clean water and an unemployment rate of less that 3 percent.
The parts of the country particularly hard hit by falling prices are where there have been extreme levels of appreciation over the last several periods. The question then becomes how much appreciation did we experience and what has the reversal been since then?
The three-month rolling average home closing price, in both Ada and Canyon counties, have come back down to the rolling average established in June of 2006. This implies that today you can purchase a home in the Treasure Valley for about what you would have paid 22 months ago.
I submit that the fundamentals of our real estate market are correcting and by waiting to purchase you may see the home prices rise. The facts show the excess supply of finished residential inventory is eroding. Lot inventory notwithstanding, the number of home closings is accelerating and prices appear to be ready to stabilize. When you combine these facts with mortgage interest rates in the 6 percent range it seems like an excellent time to buy.
Dave Player, of Boise, has been in the banking and commercial finance industry for 30 years. He graduated Magna Cum Laude from the Business School of the University of Utah with a degree in economics