I’ve had this question a dozen times this past week. So many of you have reached out. Clearly the impact of the coronavirus on Boise’s real estate market (and the broader economy) is on everyone’s minds right now. In no particular order, I would like to share lessons learned from working and living through the Great Recession.
We are facing the start of the spring market with an economic challenge. Every spring from 2008 – 2011 (the downturn) prices rose (slightly) and activity increased, compared to the immediately preceding winter quarter. Even though there were net losses year over year, the spring market was stronger than any other time of year. In a few weeks we will know if inventory will grow and/or prices will shift. This information is simply unpredictable and it’s too early to know the impact on our local market.
The 2008 housing downturn started in late summer/early fall. The market crash in October, 2008 signified the true “shift.” In August, 2008 there was already a sense of unease and buyers began terminating their pending sales. Those homes went “back on market,” and did not sell. Inventory grew quickly and sales slowed dramatically. The economy was shifting as we simultaneously entered a slower time of the year in the real estate cycle.
The spread of the coronavirus in Boise is low, relative to its effect on larger cities that feed into our real estate market. Our smaller city has responded quickly, aggressively and proactively on all fronts (healthcare, schools, city government, local businesses). Combined with our relative geographic isolation, we may experience some peaks in Treasure Valley real estate. We continue to attract people from larger cities in the northwest (Seattle, Portland, San Francisco) that are already considering relocation to Boise. I predict that if Boise’s coronavirus experience is mild, and if life is back to usual by mid-April, we will proceed with a strong market by late-spring/early-summer.
The last downturn was deeply connected to mortgages that buyers couldn’t afford, followed by foreclosures during job losses. Those resulting foreclosures (and short sales) flooded the market and drove down housing prices. Over the last 10 years, many families have applied larger down payments on their home purchases. They have also structured more affordable mortgages that can be managed on a single income. Everyone requires housing, and I suspect that even with job losses, homeowners are better positioned to weather an economic storm. This is why I do not expect a flood of inventory like we had from 2008 – 2011.
It’s more important than ever to hire an experienced agent: During the downturn, right-priced homes sold. But there were still sellers who refused to budge on their list price. Successful sellers studied the competition, and priced their homes accordingly. Buyers always want the best overall value for their home purchase.
If you must sell within the next 12 months, you may want to accelerate your listing plans. In October, 2008 (economic crash) sellers sold their homes, on average, for more money than sellers who sold in October, 2009.
We don’t yet know how multi-week shut downs will impact so much of our economy. The last recession was lengthy. Our current situation seems to be temporary, assuming the coronavirus can be quickly contained and most industries can return to near-normal activity. We also do not know the impact of quick and significant stimulus measures.
Are you comfortable in your current home? If so, settle in and enjoy homeownership. If property values decline, it will be temporary. It’s hardly ever worth it to sell your property when it may be “undervalued.” We are not there yet (and hopefully won’t be), but I would love to see this message out there: Housing is an expense for everyone whether you pay rent or a mortgage. Selling a home that has lost value (temporarily), and becoming a renter, does not make good financial sense. During the Great Recession, I consistently encouraged homeowners to keep their homes. None of my clients lost homes to foreclosure or short sale, literally not a single one. Everyone came out of the downturn with equity and tremendous financial strength from holding, rather than selling, their investment.
Buyers who are purchasing for the long-term, and within their means, can rest assured that over the long-term, real estate continues to be a financially-rewarding investment. Consider your long-term plan for housing. Even buyers who purchased at any point between 2005 – 2008 (the peak before the Great Recession) are in a strong equity position today in 2020, given market appreciation and principal reduction. Had those same buyers rented for five years before buying at or near the bottom of the market, they would have purchased for less, but they would have also delayed building equity through principal reduction (paying rent vs mortgage).
Purchasing a home that can eventually become a rental is a smart way to build a real estate portfolio. Are you expecting a housing transition in the next two to five years? Consider purchasing a home that can be converted to a rental property. Using this strategy, it makes sense to start saving for the next down payment right away. Many buyers did this during the Great Recession. Now they earn additional income as a landlord, and were able to buy their next home at a lower price.
Buyers who are uncertain about their housing needs for the next two years, and are not in a position to become a future landlord, may want to rent rather than buy.
Do not rely on available Home Equity Lines of Credit (HELOC) to be available to you in the future. During the Great Recession, banks often reduced (or closed) unused lines of credit. This is a critical point if you are relying on a HELOC as a source of funds to manage household cash flow during a lay-off. HELOCs can be a tool—plan accordingly.
Considering downsizing? You may want to do so immediately, particularly if retirement is imminent. If you are pondering early retirement, or you previously delayed retirement due to the Great Recession, you can maximize your sale price now. You will also be able to better secure financing while your employment is still stable. You will also be “downsizing” (or even eliminating) any mortgage debt.
Real estate is local. Even during the Great Recession, some US markets thrived. Boise did not, largely due to bad mortgage lending practices. My hunch is that the infrastructure of Boise’s real estate market is much more solid, and able to withstand a broader economic downturn. Time will tell—I’m entering these uncertain times with a lot more experience than the last time!
Be well, everyone!
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