In my day to day dealings as a REALTOR® here is Boise, Idaho, a number of people are wanting to know "Are home prices going to continue to fall?" or "How will we know when the market has bottomed out?"  I answer that question with a consistent answer, but one that always leaves people a little frustrated.

To me, the housing market is best forcasted by analyzing the numbers.  The peaks and valleys of the market are due in large part to simple supply and demand.  When supplies are low, demand, and price, increase accordingly.  When supplies are up, as in our current market, demand, and price decrease.  So all we have to do is monitor the inventory numbers and when they start going down, we know the bottom has been hit right?  Well hang on a second...

Another factor that has led to our slower market in Boise, and across the nation, has been the major changes that have occurred in the credit arena, home mortgage lending specifically.  As a REALTOR® I am always on the lookout for ready, willing, and able buyers.  For years the ready and willing buyers were not hard to find, but able buyers were a little harder to come by.  But by 2004 lenders were offering a plethora of exciting new loan programs that helped a number of these ready and willing buyers, become able to purchase a home.  Unfortunately many lenders became a little bit to loose with their standards, and made able buyers out of people that had no business purchasing a home at that time.  What followed were large problems for most lenders, and massive reform in lending guidelines.  So how does that affect our current market?

Along with high inventories of homes, the market is dealing with a couple of issues in regards to the home buyers.  There are many buyers now who are able to purchase, but right now don't know if the time is right, so they are no longer ready and willing.  These are some of the people that are posing the initial questions.  What is also happening is that there are many people, especially first time home buyers, that are ready and willing to purchase, but with the strict lending guidelines, are no longer able to purchase.

So to sum it all up, we have a large supply of homes, and less demand, which has caused pricing to adjust down.  We have many buyers who are skeptical of the market, and not sure when it is going to be o.k. to purchase a home again.  We have other buyers who would like to purchase, but cannot because of strict lending guidelines. 

Here is what I am observing in the market as of this post.  Inventories in Ada County were down in July 2008 from July 2007.  This is the first time that the current years inventory has been less than the prior years inventory all year long.  Housing has become more and more affordable in this area, and has opened up the option of purchasing to a number of buyers who were priced out of the market during the peak.  Now these are good signs for the market, but I'd like to see a few more months of decreasing inventories before I will feel comfortable telling buyers or sellers that we are out of the woods.  But remember...

It is going to be hard to time the market perfectly.  Right now some sellers, especially some builders, and banks, are showing a willingness to cut their losses in a sense, and are offering substantial price reductions to willing home buyers.  Buyers right now are buying homes at or below 2004 levels, which in my mind will only last until we have purged our inventory of foreclosure, and bank owned properties.  So keep a close eye on the market, and keep coming back to my Boise Housing Market blog for updates!

• Affordability getting better. NAR’s housing affordability index has been trending up this year and is projected to rise 15 percentage points to 128.0 for all of 2008. “It appears that more buyers are realizing they can take advantage of a favorable combination of mortgage interest rates, home prices and family income,” says NAR President Richard F. Gaylord. “Overall affordability conditions are the best we’ve seen since the middle of the housing boom in 2004, but with far more choices and much less pressure than buyers experienced four years ago to make an investment in their future. Recent declines in mortgage rates on conforming jumbo loans and a return to sound but not overly stringent underwriting standards will permit more people to qualify for a loan.”

• Mortgage rates to go up. “Although mortgage interest rates will remain historically favorable, they will start to steadily inch up,” Yun said. The 30-year fixed-rate mortgage should rise gradually to 6.3 percent by the end of this year, and then hold at that level for most of 2009.

• Demand for homes only rising. Yun said the underlying fundamentals point to a pent-up demand. “Home sales are at about the same level as they were 10 years ago, yet the population has grown by 25 million people and we have over 10 million more jobs,” he said. “The housing market has been underperforming by historical standards, partly because buyers were hampered by mortgage availability issues, but that’s improved and an upturn is more likely. On the other hand, it’s unclear what role consumer confidence will play in the coming months.”

• EHS to see healthy gains in ’09. Existing-home sales should increase from an annual pace of 5.05 million in the second quarter to 5.83 million in the fourth quarter. For all of this year, existing-home sales are expected to total 5.40 million, and then rise 6.3 percent to 5.74 million in 2009. “Sales gains will be greatest in areas that underwent sharp price declines,” Yun said.

• Prices to stabilize in second half of this year. After unprecedented home price declines in the first half of the year, many markets can anticipate stabilizing price trends in the second half. The aggregate median existing-home price is likely to decline 8.4 percent in the first half of this year, and then begin to stabilize in the second half before rising 4.4 percent next year to $213,900. “Policymakers need to be attentive to the fact that many homeowners have seen a reduction in housing equity, or are in an ‘underwater’ situation. More needs to be done on the policy front to alleviate hardships and bring fence-sitters back into the marketplace,” Yun says.

• New-home sales slow to recover. New-home sales will probably fall 31.7 percent to 529,000 in 2008 before rising 12.5 percent to 595,000 next year. Housing starts, including multifamily units, are projected to drop 27.2 percent to 987,000 this year, and then slip 0.6 percent to 980,000 in 2009. “Rising construction costs will provide less room for price cuts on new homes,” Yun said. The median new-home price is forecast to decline 3.1 percent to $239,500 in 2008, and then rise 5.4 percent next year to $252,400.

• A better economic picture. Yun sees an improving economy. Growth in the U.S. gross domestic product (GDP) should be 1.7 percent in 2008 and 2.0 percent next year. The unemployment rate is estimated to average 5.3 percent this year and 5.6 percent in 2009.

• Inflation growing. Inflation, as measured by the Consumer Price Index, is expected to be 3.6 percent this year and 2.4 percent in 2009. Inflation-adjusted disposable personal income should grow 1.4 percent in 2008 and 2.5 percent next year.