The median sales price for homes in Ada County was $561,500 in October, up 4.0% from the month prior and 5.4% higher than October 2021. Until last month, there have been month-over month declines in the median sales price since the peak of $602,250 in May 2022. We haven’t seen a year-over-year decline in the overall median sales price since October 2014.
Higher mortgage interest rates have decreased purchase power for buyers and cooled demand, causing some buyers to make budget adjustments and others to press pause on their home search.
Mortgage rates surged in the first quarter of the year. The war in Ukraine added to upward pressure on inflation. As a result, the Federal Reserve raised its short-term interest rates by 25 basis points in March in its efforts to control elevated inflation. Although the Fed doesn’t set up mortgage rates, Fed’s actions have a ripple effect. A higher rate for banks tends to make borrowing more expensive for consumers affecting eventually long-term interest rates (such as 10-year Treasury bond).
While mortgage rates typically follow the trend of the 10-year Treasury yield, the rate on the conventional 30-year mortgage also tends to rise. Nevertheless, the Fed will continue its tightening policy with additional rate hikes in the following months. Thus, the outlook is for mortgage rates to rise even further. According to the mortgage finance provider Freddie Mac, the 30-year fixed mortgage rate rose to 3.8 percent in Q1 2022 from 2.9 percent a year earlier.
According to Freddie Mac, retrieved from FRED, Federal Reserve Bank of St. Louis, the average 30 year fixed-rate mortgage was 7.08% on October 27, 2022, more than double the 3.14% average in October 2021.
With the steady incline in rates and dampened demand, why didn’t prices dip last month? While there were 32.5% fewer home sales in October 2022 than in 2021, there were still 670 home sales, and the mix of those sales gives us a clue as to why the overall median sales price didn’t budge much in October.
There are two primary segments to housing inventory — existing/resale homes, and new construction homes. New home sales made up 31.9%, or nearly a third, of all home sales in October. The median sales price for new homes was $657,500, while the median sales price for existing homes was $500,000, down 3.7% from October 2021. This significant share of new home sales pulled up the overall median sales price.
Due to rising mortgage interest rates, we’ve watched price growth decelerate on a monthly basis since May of this year. The fact that October didn’t bring any major changes, price wise, indicates home values are not likely poised to plummet, though we may see more adjustments to come. Sales have slowed but won’t disappear — regardless of market conditions, life continues to go on, and some life events require a move.
Buyers who were able to purchase this fall had more negotiation power than we’ve seen in years and used creative tactics, like using closing cost credits to buy down the interest rate, to combat higher monthly payments. With price growth slowing and more inventory to choose from, buyers have been able to snag existing homes at a lower price point than they would have a year ago, with the option to refinance down the road if interest rates go down.
If you decide you’d like to take advantage of a less competitive market and purchase a new home or investment property, please reach out to me. My lender partner can go over the specifics of your financial situation and buying power while I help you search for a new home in the Boise area. Prices are attractive right now and if you have motivation to move, now may be a great time to find a great deal.
This market report is provided by Boise Regional Realtors.
