July 31, 2021

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Mortgage News

Out-of-state capital flowing into Boise’s hot housing market

A story BoiseDev members was first.

Real estate markets in markets across the country are tight and are not just being bought by homeowners.

The combination of record low interest rates, a nationwide housing shortage and renewed interest in single-family homes outside of major metropolitan areas due to the COVID-19 pandemic is triggering a new wave of investor capital in American real estate.

And Boise is at the top of many shopping lists. Data shows that more than one in five homes in Ada County is owned by someone other than a primary homeowner.

[‘A perfect storm’: Lumber and other building material shortages help drive valley home prices]

Track the data with national trends. John Burns Real Estate Consulting, which has been collecting data on investor impact on the real estate market for years, estimates that a fifth of properties sold nationwide today are bought by investors after analyzing data on property transfers across the country. The percentage is 31% for homes priced below $ 200,000.

‘David and Goliath’

Rick Palacios, the company’s director of research, said this influx of borrowed funds made it harder for first-time buyers to get to market, and it drives prices up over time by reducing the inventory levels available to lower and middle-class Americans. In addition, investors now have access to technology that allows them to instantly see which properties are coming on the market at low prices and make offers immediately.

“I think we see it as if it were almost like a David and Goliath story where there are mountains and mountains of institutional capital pursuing housing as an asset class and investing through rental housing or doing fix and flip and you I have second home investors, ”he said. “All of this is additional competition for your regular home buyer when they are at the stage of wanting to buy a home.”

Data BoiseDev received from the Ada County Assessor’s Office showed that 78% of homes in Ada County applied for homeowner exemption in 2018, 2019, and 2020. This means that 22% of the houses are not permanently occupied by a resident of the district.

This comes from Palacios’ estimates that a fifth of nationwide sales go to people who invest in real estate rather than buying it to live in themselves.

Turning around is becoming more and more common

Boise was not included in the company’s latest study of investor influence in the marketplace, released earlier this year due to a gap in available data. But Palacios said, from what he heard in his conversations with investors who did his research, that it is a “fact” that outside of capital is an important factor in Treasure Valley Rise of the real estate market.

He expects average price growth in Boise this year to exceed 30% year-over-year, a price increase the city has never seen.

“I would put Boise in the top 5 for some of the most competitive real estate markets today,” he said. “It goes back to the comments that there are just so many working for Boise who are driving this, and now everyone is talking about Boise.”

He cited data his company publishes annually on Boise, showing a 30% increase in flipped home transactions from the last quarter of 2019 to the same period in 2020. Sales rose in this period from 982 to 1,278 and made 7.5% of sales. However, that’s still less than in mid-2006, when dumped transactions accounted for more than 15% of Boise sales.

A graph of the upside down transactions in Boise. Courtesy John Burns Real Estate Consulting.

Are investors raising prices? Or just a tight offer?

Boise Regional Realtors President-elect Becky Enrico Crum, however, is unsure of the overwhelming impact investors are having on the market.

She said Treasure Valley, and Boise in particular, has always been a hot investor destination for quality of life and relative affordability when compared to California, Portland, and Seattle. The difference, however, is that there are far fewer homes for sale in this market and the build-up of supply is driving the market faster than in the past.

“This is not the first time we’ve been on top lists,” she said. “That just always happened, but five years ago we had more houses to choose from so we didn’t notice it that much. But since we only have a small amount of inventory, we have less to share. “

Crum also pointed out that there are a number of reasons why someone would buy a home that they don’t want to live in right away. Someone might want to move to Boise in a couple of years, but they know they need to get into the market now before prices continue to rise, so buy now and rent until they move. She has also noticed an increase in the number of people who want to help their children or other family members buy a home because they cannot afford it themselves.

More money buyers, but not a majority

Not all cash buyers are from out of state.

“We’re seeing more money buyers in the market, including locals who have owned their homes for a long time and were able to take advantage of the Boise capital increase to make their home worth more,” said Crum. “This could be people downsizing, or I have some clients who are like, ‘Okay, great, I can sell my house now and I can pay off my student loans, I can pay off my car and start this new board over.’ “

There are many myths that the bulk of sales go to cash buyers who hit the market, but cash buyers still make up less than a quarter of total sales, according to the Intermountain MLS. Cash shoppers accounted for 21.9% of sales in 2021, up from 16.7% in 2016.

At the same time, loans that the Federal Housing Administration supports to attract low-income Americans to home ownership are declining in the region. Fifteen percent of buyers who volunteered to say they bought a home they wanted to live on in used FHA loans in 2016, compared to just seven percent the previous year.

Ryan Froehlich, president of the Idaho Mortgage Lenders Association, said that due to a variety of factors, it is becoming increasingly rare for people to finance their homes in this way. After the Great Recession, the conventional mortgage market became competitive and often offered better deals than FHA loans to more buyers. Also, with FHA loans, now you can no longer remove your mortgage insurance from your home if you want to, which is preventing people from taking advantage of it.

Froehlich said this means the only people likely to use FHA loans are those with lower incomes and lower credit scores. When you combine this with the hot market, where these buyers often have to sell one home before they can buy another, it becomes even more difficult for these buyers to find a property.

“What we’re doing here is not so much FHA lending as a product, but rather the result of a dynamic about who is entering the Treasure Valley market and the strong financial background they come from from California, Seattle, and parts of Oregon. “

Tomorrow: It’s not just single-family houses. Apartment complexes and office buildings are also hot commodities.

Disclosure: Boise Regional Realtors is a BoiseDev advertiser. It had no role in the selection or production of this story.