Home Prices Still Climbing?

There it is again! “Ada home prices still climbing” reads the headline in the Business section of our local newspaper. Tell that to all the homeowners in Ada County that have had to reduce their asking prices to get their homes sold. And to the hundreds of other homeowners that are continuing to reduce their asking prices to try to get their homes sold.

The newspaper reported that the median home price of homes sold in June 2007 was $235,090. Median home price means that an equal number of homes sold above and below the median price. But does a rising median home price mean that home prices are “still climbing”? Let’s look at one reason why median home prices could be rising while home prices are declining.

First time home buyers are pretty rare in the market we’ve had over the past couple of years. Before home prices started rapidly moving up in 2005, a first time home buyer could purchase a comfortable home in Boise for under $120,000. Today that same home would be priced near $180,000. Back in 2005, the principal and interest on a loan to buy that $120,000. home would have been around $720./month; now they would have to pay around $1080/month for that same home (figuring a 30 year loan and interest at 6%). Too many first time buyers have been priced out of the market so although there is a demand for lower priced homes the supply just isn’t there. So sellers - those who HAVE to sell - are continuing to reduce their prices until they can’t go any lower or until they find the price where a buyer is able and willing to purchase.

So who is buying? Buyers who have the means to purchase without selling their existing home. In other words, buyers who will be purchasing homes priced above - sometimes well above - the median price level.

Median home price rising does not equate to home prices climbing. We’re still feeling the effects of the soaring home prices of 2005 and 2006 but on the flip side. Bottom line is that home prices are not “still climbing” but are settling back to a place that is more sustainable for the economy in Boise, Idaho.