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I Told You So

I am not one to gloat (well, ok maybe I am a bit), but let’s take an inventory of what has occurred in the past few months. In the summer of 2007, the “Big, Hairy Subprime Mortgage Crisis” hit the nation. Were we affected in Eastern Idaho? Yes, but only as a residual to what was occurring in other, more vulnerable markets nationwide.

In August 2007, I wrote about this so-called crisis and, my humble opinion, how it would affect the local, Eastern Idaho market. My thoughts were centered on three points. First of all, the foreclosure of “sub-prime” loans, though increasing, were not quite as big a problem as the media was making them out to be. Second, though there were “mortgage bubbles” to be found in certain markets (i.e. California, Las Vegas, Phoenix, etc.), Southeast Idaho was not in a mortgage bubble. The growth that Idaho Falls had experienced was driven by actual growth and not artificial hype. Finally, I spoke about the slowdown in the market. This, in my opinion, was based more on the self-fulfilling prophecy of what was being touted on the news and investor fears than actual market issues (at least locally).

At that time, I made a bold and risky prophecy:

“The Eastern Idaho Real Estate Market is strong today and will continue to be so in the future. Though it naturally is reacting to the national market sobbings (after all, most local loans are sold to the national market), real estate, just as in politics, is STILL local. Give this bump a few months to ride itself out and we will be back on our steady and slightly increasing path of growth in Southeastern Idaho!”

Now, for the gloat fest … Yes, the local market took a hit the past few months. Our volume was the lowest it has been for many years in the last quarter of 2007. We were down 30%-40% during those few months. Rest assured, the Southeastern Idaho market is rebounding and returning to its prior growth.

As predicted, the rules have changed and national lending is a different animal than it was before. It will continue to change. The new bureaucratic “Independent Valuation Protection Institute” created to “save the nation” (that was said with heavy sarcasm) from this “terrible crisis” has been developed from the “Home Valuation Protection Code” which is basically a fall-guy fix for a media-hyped issue that should have been solved by allowing the markets to work naturally.

The code will change the way lenders and appraisers work together (or do not work together). Beginning on Jan 1, 2009, local lenders will no longer be able to order appraisals directly from the appraiser. They, instead must order through a third-party, management company. There will be no estimated values, no recommending favorite appraisers, and no second appraisal if the first one does not come in high enough to make the loan work. Though many aspects of this code are favorable and welcomed in the industry, much of it is overkill for a problem that was never really a problem.

In other words, politics have changed the way we do business, but the Southeastern Idaho market continues to be strong and increase steadily. The national spillover affect hit us briefly, but our markets were never in trouble to begin with. The major hype is decreasing and the local growth continues.

Some anecdotal evidence: Drive the streets of Idaho Falls, Blackfoot, Pocatello, Rexburg, etc (I do this often). The growth of both residential homes and commercial buildings continues. There are still a large number of high value residential spec homes sitting empty, but the majority of homes in the $100,000 to $300,000 range continue to move. Though days on market increased slightly for most of these homes (from 133 in the first quarter of 2007 to 146 in the first quarter of 2008) , values have not decreased (but have actually increased slightly) in the past few months. In the Post Register, just Monday was an article on a proposed, large convention center planned for Rexburg. Folks, these builders are not stupid. They are capitalists and would not be continuing to build if the market was dead.

Now, some actual statistics: The Post Register reported Tuesday that Idaho’s urban centers are ranked in the top 30 for the rate of population growth…NATIONWIDE! We are growing at over 3 percent per year! Those people have to live somewhere. In February of 2008, MSN Money rated Idaho Falls 9^th in home value increases as sourced by the OFHEO’s House Price Index. According to the OFHEO, Idaho Falls increased .28 percent in the last quarter of 2007 (DURING the so-called slow-down). Though the OFHEO stats are not out for quarter two yet, they do report that the ONLY area in the nation that actually had an INCREASE in value for Jan. 2008 was the Mountain Region at 0.1%. According to the local MLS, the average selling price for a home in Southeastern Idaho in the first quarter of 2007 was $170,000. In the same period of time a year later, the average selling price INCREASED to $183,000. This is a 7% increase at a time when the national markets are decreasing!

Based on this and other research, I continue to mark “increasing” in describing the local market in my appraisal reports (for most neighborhoods). Also, I continue to make a sales date adjustment for older sales. In other words, those homes that sold for X amount 9 months ago, would sell for a HIGHER price today.

Everywhere I go, when people learn I am in real estate, the question is “So, what do you think about the slow-down?” My answer continues to be the same, “What slow down? I haven’t noticed.” Just as in years past, December and January were slower months (this is seasonally the most difficult time to sell a home). Also, as in years past, purchases are picking up as we head into the spring and summer seasons. I expect, just as in years past, we will have a thriving summer in Southeastern Idaho.

Your comments are welcomed.