Mortgage

The housing market reveals cracks in value cuts in pandemic boomtowns

No city exemplifies the mania of the Covid-era US housing market better than Boise, Idaho, where prices have soared more than 30% over the past year. But in a sudden reversal, buyers are now the ones in power.

The offer prices for houses will be reduced. Bidders no longer have to forego inspections to attract sellers who juggle multiple offers. Demand has slowed so much that it feels like a light switch has suddenly gone off, said Dominic Zimmer, a local realtor.

"You see the fear of missing out on the switch from buyers to sellers," said Zimmer. "Now sellers are afraid not to score like they saw their neighbors a year ago."

The cracks in one of the hottest real estate markets in the country are an early sign that the US boom – fueled by low mortgage rates and remote working movements – is weakening. While in large parts of the country record price increases and falling offers are still being recorded, builders who have barely been able to build houses fast enough have inventory in some destinations.

The slowdown is particularly pronounced in areas away from the major urban centers, where shoppers sought affordability and quaint oases during the pandemic. That demand has subsided as people have more reasons to stay this fall as classroom schools have returned and more companies are calling workers back to the office, or at least requiring them to be somewhere nearby.

The result: prices are bumping into the reality of local economic fundamentals.

CBH is home to new residential real estate in Canyon County. Photographer: Kyle Green / Bloomberg

Photographer: Kyle Green / Bloomberg

"The markets where we see the most price cuts flew a little too close to the sun earlier this year," said Daryl Fairweather, chief economist at Redfin brokerage firm. “Sellers became eager in their asking prices. It was unsustainable and benefited from pandemic trends that are still ongoing, but not as extreme. "

In the US, home price appreciation slowed for the second straight month in September as part of a modest slowdown, Zillow Group Inc. reported this week. The number of homes with price cuts is growing, with more than half of listings being cut in counties near Denver, Salt Lake City, and Indianapolis, according to Redfin. Even in some of the hottest areas where workers from major urban cities have spread, such as the counties of Portland, Maine and Tacoma, Washington, more than 40% of entries have been cut, Redfin data shows.

In Idaho's Canyon County, about eight out of ten offers were price cuts, with the largest proportion being distributed in high-cost regions in the United States. Albertsons Cos is one of the largest employers. and Micron Technology Inc., both of which are based there.

Homes that started when the market was looking unstoppable will get cheaper after they are completed. A Toll Brothers Inc. home in Nampa with a gourmet kitchen and double sinks in the master bathroom sells for $ 575,000, down from $ 44,000 since it listed in late June. CBH Homes, Idaho's most prolific construction company, has 100 Canyon County homes with active listings on Realtor.com. As of Friday, 80 have discounts.

Toll Brothers declined to comment. CBH builds custom homes – without a buyer – so there are always 100 to 200 homes available, said CeCe Cheney, a company spokeswoman. "In terms of pricing, our pricing has to change with the changes in the market," she said.

Zimmer, an agent for Amherst Madison Real Estate in Boise, said he had failed to get a single buyer on an offer below the asking price until August. It was then that John Blake, assistant chief of medical personnel for Ada County, decided to jump into the fray. He won a two-bedroom home for $ 327,000, which is below the asking price of $ 349,900. There were no other bidders.

"I looked at a number of houses that were outrageously expensive for what they were," Blake said. While excited to get the house, he worries that he might have bought it near the top of the market.

The pullback is a sign that prices are going too far beyond what locals can pay, said Rick Palacios, research director at real estate consultancy John Burns. In the third quarter, 75% of the US states had mid-price single-family homes that were less affordable than the historical average, according to real estate data company Attom. That is the highest percentage in 13 years.

Canyon County has historically been the least affordable when compared to its average wages and housing costs, based on an attom analysis of more than 300 counties with a population of at least 200,000 people. Boise's home of Ada County took second place.

"You are passing from every market under the sun that is going crazy and now you are starting to see where long-term fundamentals actually matter," Palacios said.

Of course, Boise sellers don't need to worry too much, as most of them are sitting on a mountain of equity. And even if asking prices were lowered, the declines would have to be steep to fall below the level of the previous year.

In some ways, a slowdown is to be expected. It's seasonality's comeback skipped in 2020, said Julie Russell, an agent at Coldwell Banker in Farmington, Utah, 20 minutes north of Salt Lake City.

In December, Russell listed a house that received 23 offers in a 24 hour period. But she has put two houses on the market in the past two weeks and has had to cut prices on both.

Buyers have lost some of their urgency now that mortgage rates are starting to rise, she said.

"It's still better than it was two years ago," said Russell. "It just feels so dramatic because we had so many offers, sometimes invisible, and now we're returning to a sense of normalcy."

The boom remains strong in many sun belt oases like Phoenix and Austin, Texas, where jobs are growing rapidly. But in Pasco County, Florida, a relatively affordable coastal area about 45 minutes north of Tampa, sellers can no longer shoot for the moon, said Gerard Buglione, an agent at Charles Rutenberg Realty.

He works with a family who moved from New Jersey at the height of the boom in April. They hit several bidders and paid $ 270,000 for a four bedroom open floor home on a cul-de-sac.

You didn't like Florida and now you want to retire. They went for a big profit and put the house up for $ 369,900 in early September. Since then, the price has fallen by $ 20,000. A neighbor just sold a house with the same floor plan for $ 10,000 less.

"Many buyers are frustrated and have put their shopping on hold," said Buglione. "The prices are leveling out."

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