The game is over and the secret is out: Idaho is a nice, cheap place to live. Immigrants-foreign and domestic-are invading in droves and locals are feeling the pinch. All of a sudden, everyone needs a place to hang their cowboy hat.
You can blame the magazines: Forbes has rated Boise in the top 10 "Best Places for Businesses and Careers" in each of the last three years; in 2003, Bike called Boise the best mountain biking town in the nation; and last month, Boise placed second on Inc.'s "Best Cities to do Business in America" list. Idaho is quickly climbing up other "best" lists as well, as our population grows at one of the top rates in the nation.
But no matter who got the word out, people want to live here. As a result, housing prices are, ahem, "adjusting." In the last year alone, Ada County housing prices rose an estimated 10 percent. As prices continue to climb, many people wonder how long this updraft will last. Is it too late to get on board, or is buying a home now the best investment money can buy?
Jon Adamson, president of the Boise broker the Realty Center, says now is a great time to get involved. He has bought and sold local real estate for more than 20 years and estimates some Treasure Valley homes have increased an average of $22,000 in just the last 10 months-an astonishing amount for any time period. Adamson believes prices will overall continue to climb over time, making houses a great investment for speculators and home buyers.
"I always tell people if (they're) buying a home, the first home should be their best investment," he says.
The Idaho Housing and Finance Association (IHFA) has a variety of programs to help give first-time home-buyers affordable housing opportunities. Since 1978, the organization has helped nearly 51,500 Idahoans get a home of their own.
In May, IHFA announced Idaho has the top home ownership percentage for the Western United States, at 75.6 percent, compared to the national average of 69.1 percent. (These numbers are for owner-occupied dwellings; they do not include rentals.) For home ownership, Idaho's rate is now seventh in the nation.
"Interest rates have gone down so dramatically that renting is no longer lucrative," says Reed Hollingshead, an IHFA representative. "A lot of people are figuring the chances of benefiting from home ownership outweigh the risks of losing."
Be aware, people are not simply buying houses here just because they think Idaho is a great state. Another reason is because housing in general has been an attractive investment the last few years. Some financial analysts estimate it has outperformed the stock market since the late nineties.
Similar to the stocks and bonds markets, housing prices are greatly influenced by the federal interest rate, which has dramatically decreased in recent years. Similar to the low-percent financing for cars, loans for homes are now being offered at historically low rates.
Lenders are also offering buyers more variable rate loans, which adjust to federal interest rates. Housing has become more affordable with its current rates, but an increase could make such loans start at 4.5 percent and rise to 9.5 percent within five years. These loans may be useful for short-term investments, but to avoid risks, buyers may prefer conventional fixed-rate loans, now averaging just below 6 percent.
Low rates are great for buying houses, but market analysts wonder if the rates are causing a housing demand with artificially high values, a "bubble." Regardless of this well-publicized national trend, however, local competition for buying houses is strong. Any local real estate agent can share horror stories about submitting an "early" offer (within the same day a house is officially listed for sale), only to learn that several other offers were also made.
Houses are now being sold to bidders offering up to thousands of dollars more than the seller's asking price. Houses are even being sold "sight unseen" from distant buyers, willing to forego a walk-through and housing inspection-routine steps to help the buyer assure the house is in order. Some people believe that sellers now have an unfair advantage because they no longer need to agree to what used to be commonly asked from them, such as paying for closing costs, correcting house deformities etc.
It is difficult to predict the future in housing, but most believe there is a very high correlation to the federal interest rates. One school of thought maintains that if interest rates rise, people will not be able to buy at the current prices and the market will fall. Brian Topley, a real estate investment advisor with the firm Arroyo and Coates, offers a different scenario.
"A period of rising interest rates typically coincides with rising inflation, which would tend to increase housing prices," Topley says. "In the past, there have been sharp increases in interest rates and housing held its value or even increased."
Topley provides as an example the period between 1977 and 1981, when interest rates (10-year U.S. Treasury bond yields) increased from 7.2 percent to as high as 15.8 percent. At that same time, median real estate prices increased in value from $58,100 to $95,500, a 64 percent increase. However, when the interest rate dipped in the early 1980s, home prices plummeted over 10 percent and didn't recover until 1986.
"I do have concerns about the housing market, including the rapid appreciation and tendency of buyers to obtain adjustable rate loans," he says. "If interest rates rise, these buyers could have difficulty making their payments, even if housing prices remain high. However, it may be a good time to buy for families with long-term goals using fixed-rate loans."
But, to be sure, no one is sure of what to expect in the near future in a hot market like Idaho.
"There are so many competing factors, it really hard to tell where the market is headed," Topley continues. "My advice for prospective buyers is to be conservative, keep a long-term horizon and not assume that interest rates will remain low."