A story BoiseDev members got first.
Real estate markets are tight in markets across the country and it’s not just homeowners buying them.
The combination of record-low interest rates, a nationwide housing shortage and a renewed interest in single-family homes outside of major metro areas due to the COVID-19 pandemic is fueling a new wave of investor capital in American real estate.
And Boise is at the top of many of their shopping lists.Data shows more than one out of every five homes in Ada County is owned by someone other than a primary homeowner.
The data tracks with national trends. John Burns Real Estate Consulting, which has been gathering data on the influence of investors on the real estate market for years, estimates one-fifth of homes sold today nationwide are purchased by investors after analyzing property transfer data throughout the nation. The percentage hits 31% for homes priced under $200,000.
‘David and Goliath’
Rick Palacios, the firm’s director of research, said this influx of outside money makes it more difficult for first-time homebuyers to bust into the market and drives up prices over time by reducing the inventory attainable for lower and middle class Americans. Plus, investors now have access to technology allowing them to instantly see what homes go on the market at low price points and instantly put in offers.
“The way I think we see it is it’s almost like a David and Goliath story where you’ve got mountains and mountains of institutional capital that are chasing housing as an asset class and investing via rental homes or doing fix and flip plus you’ve got second home investors,” he said. “All of that is added competition for your regular, entry level home buyer where they are at that stage where they want to buy a home.”
Data obtained from the Ada County Assessor’s Office by BoiseDev showed 78% of homes in Ada County claimed the homeowner’s exemption in 2018, 2019 and 2020. That means that 22% of homes aren’t permanently occupied by a resident of the county.
This tracks with Palacios’ estimates of one-fifth of sales nationwide going to people investing in property instead of purchasing it to live in themselves.
Flipping becoming more common
Boise was not included in the firm’s latest study of investors’ influence in the market that came out earlier this year because of a gap in the data available. But, Palacios said after what he’s heard in his conversations with investors doing his research he said it’s a “matter of fact” outside capital is a major factor in the Treasure Valley real estate market’s rise.
He expects the year-over-year growth in median prices to outpace 30% in Boise this year, a level of price appreciation the city has never seen.
“I would put Boise in that top five in terms of some of the most competitive housing markets right now,” he said. “It goes back to the comments about how there’s just so many working for Boise right now that are driving that and now Boise is on everybody’s radar.”
He pointed to data his firm publishes annually on Boise which shows a 30% increase in transactions involving flipped homes from the last quarter of 2019 to the same period in 2020. The sales grew from 982 to 1,278 during this time period and made up 7.5% of sales. However, this is still less than mid-2006 when flipped transactions made up over 15% of sales in Boise.
Is it investors boosting prices? Or just tight supply?
Boise Regional Realtors President-elect Becky Enrico Crum isn’t so sure about the outsize impact of investors on the market, though.
She said the Treasure Valley, and Boise in particular, have always been hot destinations for investors for the quality of life and relative affordability compared to California, Portland and Seattle. But, the difference is that this market has far fewer homes for people to buy and the constriction of supply is driving up the market faster than it did in the past.
“This isn’t the first time we’ve been on top lists,” she said. “This has just consistently been happening, but five years ago we had more houses to choose from so we weren’t noticing it as much. But since we have only a little bit of inventory we have less to share.”
Crum also pointed out that there are a range of reasons why someone would buy a home that they don’t plan to immediately occupy. It could be because someone would like to relocate to Boise in a few years, but they know they need to get in on the market now before prices continue to increase so they buy now and rent until they move. She has also seen an increase in the number of people looking to assist their children or other family members purchase a home because they cannot afford it themselves.
More cash buyers, but not a majority
Not every all cash buyer comes in from out of state.
“We’re seeing more cash buyers in the market also from the local people who have owned their homes for a long time and have been able to take advantage of the equity increase in Boise so their house is worth more,” Crum said. “Those might be people downsizing or I have some clients that said ‘ok great I can sell my house now and I can pay off my student loans, I can pay off my car, and have this fresh slate to start over.’”
There are a lot of myths out there about the majority of sales going to cash buyers entering the market, but according to data from the Intermountain MLS cash buyers are still less a quarter of total sales. In 2021, 21.9% of sales were to cash buyers, which is up from 16.7% in 2016.
At the same time, loans backed by the Federal Housing Administration to help boost low-income Americans into home ownership are on the decline in the region. Fifteen percent of buyers who voluntarily reported buying a home they planned to live in used FHA loans in 2016, compared to only 7% last year.
Idaho Mortgage Lenders Association President Ryan Froehlich said it’s becoming less and less common for people to finance their homes this way due to a variety of factors. After the Great Recession, the conventional mortgage market became competitive and often provided a better deal than FHA loans for more buyers. Plus, FHA loans now don’t allow you to remove your mortgage insurance from the home if you want, which discourages people from using it.
Froehlich said this means the only people likely using FHA loans are people who are lower-income with lower credit scores. When you combine this with the white hot market where these buyers often need to sell a home before they can buy another one, it makes it even more difficult for those buyers to find a property.
“What we’ve got going on here is less about FHA lending as a product and more a result of a dynamic about who is moving to the Treasure Valley market and the strong financial background they’re coming from out of California, Seattle and parts of Oregon.”
Tomorrow: It’s not just single-family homes. Apartment complexes and office buildings are hot commodities, too.
Disclosure: Boise Regional Realtors is a BoiseDev advertiser. It had no role in the selection or production of this story.