Are We There Yet? Have Home Prices in Boise Hit Bottom?

The Case-Shiller boys (economists Robert Shiller, Karl Case, and Allan Weiss) have determined through their studies that house prices in the 100-year period from 1900 to 2000 rose at an average 3.35% per year. Hmm, so where would our Ada Co. Single Family Home prices be if we hadn’t gotten bubbled by . . .
      ( . . .an easy Fed money policy, a “bring me whatever you got” Fannie and
       Freddie [remember, Barney said “let’s roll the dice . . .”], banks’ required
       participation per the the Community Reinvestment Act  – to loan to
       low-to-middle (LMI) income borrowers who never should have been
       home buyers, and, loan brokers pushing ever-more inventive products
       that made sure anyone could qualify for a loan – after all, Fan/Fred
       would buy it!)
. . .umm, let’s say, unforeseen circumstances.

The graph below shows two tracks. One, at 3% - a little less generous than Shiller’s 3.35%, and one at 5%.  I put in the 5% trendline because the Ada Co. yearly totals in 1998 and 1999 may have been indicating incipient growth, occurring as a natural result of the area’s desirability.

For reference, the average Ada Co. home price in 1998 was $139,900. In 1999 it was $147,530 – a 5.4% increase over the previous year. By February of 2006, the average had risen to a peak of $280,869 – 201% of 1998’s average price!

So, if we pretend the bubble never happened, a 3% per year home price increase over the past eleven years would have made this past November’s average home price $200,714. What was it actually?  It was $178,389.  So, by this little “what if . . .” exercise, the Boise housing market has theoretically hit bottom, and then some.

Please don’t take this little amusement for anything other than that – just an amusement.  In addition to the RE bubble, this economy also suffered from a succession of financial implosions. We may have truly had our average home prices reset to a lower trend line. Less pessimistically, prices could stay and/or go lower until the proportion of default listings recedes, lessening its negative effect on the natural price level. And, at that point, the market could possibly rejoin the trend line.

On the optimistic side, the new congress could bring positive economic policies for individuals and businesses, creating confidence and a willingness to invest, thus spurring a growth rate that would vaporize the current moribund predictions for the economy - and the housing market.