Is The Housing Market Slowing Down? - Article Banner

Investors have some questions about the housing market. Is it going to crash? 

No, it’s not going to crash. 

You should, however, prepare for the market to slow down. The rising prices and values can only be sustained for so long. Like with all investments, real estate investments are at the mercy of the market. That includes ups and downs, and if you’re smart and prepared, you can find opportunities even in a slowing real estate market

It’s not a good time to panic. Instead, hold onto your assets and get through the year. If you’re renting out properties, you’ll continue collecting high rents and enjoying a strong tenant pool. 

We follow the market carefully, and we analyze the data and the trends that we see through what is purchased, what is sold, and how investors are reacting to different prices, higher mortgage rates, and fluctuating demand. We don’t know everything. No one can predict the future. But, we’re talking about what we believe is happening; prices are peaking or slipping, and the market is beginning to stabilize after more than a year of intense growth.

Let’s talk about what you can expect from a potential slowdown in Idaho’s real estate market. 

What We’re Looking at in Idaho Real Estate

According to Zillow, homes in Idaho average to about $471,341. Obviously, you’ll get more nuanced data when you look closely at Idaho Falls vs. Pocatello vs. Coeur D’Alene and other parts of the state. But, when we’re talking about real estate trends across Idaho, we can see that home values, on average, have gone up about 5.4 percent over the last year. 

Prices on the sales market have begun to peak. In some markets, they are dropping. This is dissuading people from selling. They understand that with home prices not climbing higher and mortgages becoming more expensive, it’s best to hold onto the asset. This may create a tighter inventory, but it won’t drive up prices the way a limited inventory did two years ago. 

It’s still possible to get a great price on a home that’s being sold. In this way, the market is not necessarily slowing down. An owner can list their home today and walk away with the asking price. 

Slow Down vs. Crash: Why We Don’t Need to Worry 

A slowdown is manageable. A crash is a crisis. Most experts in real estate and economics don’t feel the need to panic about a potential crash. They do acknowledge that a slowdown may be on the horizon, however. Here’s why the difference is so important, and why we can predict that while we may have a slowing market, there’s unlikely to be a crash:

  • Inventory is low. 

As of August 2022, there’s just over a three-month supply of homes available in the Idaho inventory. The market is scarce and that means that prices are not completely tanking. Even if they drop, the drop is subtle. Supply and demand models won’t allow a complete loss of value in Idaho homes. 

  • New construction has slowed.

New construction has not caught up to the demand for housing, and while there is plenty of development across the state, the building is not keeping up with the levels that the market saw in the early 2000s. There’s a process to buying land, obtaining regulatory approval to build, and immediately increasing the supply of homes. If there is going to be a renaissance of new construction properties, it won’t come in time to prevent the market from slowing. 

  • Lending Standards and Cost

While specific demographics of people are in the time of their lives where they would think about buying (Millennials), many of them are not. That’s due to two things: the cost of mortgages being higher and the lending standards being stricter. The fact that these buyers are not entering the sales market and choose to continue renting will contribute to the slowdown. But, there won’t be a crash because of those lending standards that are now in place. They weren’t protecting the economy during the last crash. It was extremely easy to get approved for a home loan. Now, to get approved for a mortgage you need to provide a lot of documentation and have a sizeable down payment in the bank. 

  • Foreclosures are less of a risk

The alarming rate of foreclosures contributed to the last housing crash. Today, homeowners have more equity in their properties, and people are stronger financially. Even with the market slowing down, there’s no concern that a foreclosure crisis will be upon us. People will not walk away from their homes the way they did 15 years ago.

Buying Property in a Slowing Market 

The slowdown of the real estate market in Idaho does not mean you should put aside your investment goals. Invest in property if that’s what you are prepared to do, and look for the opportunities that will make a difference to your portfolio

Here are some of the things that can help you invest during a slow market:

  • Know what you’re buying. Don’t buy something because the price is so low. That low price tag could be telling you that major work will be needed. You don’t want to buy at the lowest price; look for properties in good condition that can be rented out right away. Spending a few days on cosmetic improvements is one thing; wasting months trying to make huge repairs will only cost you more than you’re likely to recoup. 
  • Always have an inspection done. Before the market began to slow, we saw a lot of buyers who were willing to waive an inspection. That’s not acceptable, especially not now. 
  • Prepare for negative cash flow immediately after you purchase your property. The value of your investment property may decrease slightly before it begins to build up again. This is normal and expected, so don’t panic. You may not earn positive cash flow, either, but that’s fine. It will take some extra time to build equity and see a positive cash flow, but you make money as soon as you buy your property. 
  • Remember that this is a long game. Real estate investors who drop in and out of the market are losing a lot of money. There’s also a huge opportunity cost. In a slow market, it’s especially important to take your time and wait out the more volatile trends of the market. Keep your property up to date and occupied. This will help you earn more during a slower market. 

If you’re thinking about selling, consider your mortgage rate. You’ll be leaving an asset with a great rate for a new property and a new mortgage. You might experience some sticker shock.

Selling Property in a Slowing Market 

Sell HouseWhat can owners and investors do when they want to sell and the market is slowing? 

It’s not impossible. 

Selling Idaho real estate will still bring you a price that’s bound to make you a profit. 

Your investment goals and personal evaluation of the market and your situation might tell you it’s time to sell. Why wait for the market to continue slowing? 

If you’re looking for quick cash and you want to exit from the investment you’re currently holding, go ahead and sell. Here’s why it’s a good idea to sell even if the market is cooling: 

  • If you’ve earned a lot of equity and you’re ready to make other moves with that cash, you’re well-positioned to earn the money you want or need. 
  • The sales market is tight on inventory. There’s not a lot of competition, so you’re likely to sell your home quickly. You can safely set your asking price a bit above the market average.  
  • You could use this time to make an investment upgrade. If you’re holding onto an asset that isn’t earning what you need it to earn, it may be a good time to sell it and buy something else. You can do this by deferring capital gains taxes if you take advantage of a 1031 exchange. 

Upgrading to a new property is always a good idea to sell. When you can earn more in rent and spend less on maintenance, you’re making a smart investment move. 

If you’re looking to get out of the real estate market entirely, of course it’s time to sell. 

We recommend holding properties for as long as possible to truly optimize the money you can make on your buy and hold real estate investment. But, there are always reasons to sell – especially in a market that is slowing but has the potential to continue slowing even more. 

We are more than property managers; we’re here to consult with you about your real estate investments. We study the market closely, and we’re always happy to talk with you about what we believe is happening and how you can position yourself to take advantage of any market strengths or dips. 

If you’d like some property management help or investment advice in Idaho Falls, Pocatello, or the surrounding areas, please don’t hesitate to contact us at Jacob Grant Property Management.