State of the Market: Rexburg Real Estate Market Update & Analysis

Whether you own a home, plan to buy, or plan to rent long term, the state of the Real Estate Market here in the valley WILL affect you. Everyone that needs housing to survive (that's all of us) is affected whichever direction the market goes. Let's look at some key factors and segments in our current market to determine where we stand.

Interest Rates

Understanding the factors that drive mortgage rates in America is crucial. Mortgage rates are determined adding a margin of return to the benchmark 10 year treasury note. The 10 year treasury note is influenced by the expectations of investors based upon monetary policy set by the Federal Reserve System and the state of the economy overall. For more details on how these rates are determined, read this article: https://www.fanniemae.com/research-and-insights/publications/housing-insights/rate-30-year-mortgage#:~:text=Expectations%20of%20short%2Dterm%20rates,benchmark%2010%2Dyear%20Treasury%20note.

Interest rates remain elevated, putting pressure on the market overall. Interest rates on average took a huge dip down during late summer of last year as the Federal Reserve System began to make cuts and under investors expectations that they would continue to make cuts for the foreseeable future. Why then did rates seemingly rise back to the painful highs of early last year? Ultimately, investors expectations of what the federal reserve would do happened to be wrong. The continued cuts expected did not arrive due to inflation levels remaining above the 2% target and the Federal Reserve has not made any indications that they expect additional cuts to arrive anytime soon. My personal opinion of where things are headed is that mortgage rates will gradually go down over the next couple years but will bottom out around 5.5% approximately 2 years from now.

Why does this matter?

Mortgages are amortized over a long period of time, typically 30 years. Due to this, interest rates have a large effect on what your monthly payment will be. To give you a quick idea, the average stick-built single family home sale price in madison county over the past 6 months was $458,890. With a 20% down payment and a 6.87% interest rate your payment for principal and interest would be $2,410.44. At a 5.5% interest rate the monthly payment would be $2,084.42. This is why interest rates matter.

Residential Housing

The stats on residential housing overall portray that we are in a stable market leaning towards neither buyers or sellers.

All Residential Housing Types (single family, townhome, manufactured, etc.)

Just to touch on a couple of things of note. Market volume has shrunk by a sizeable amount in both new listings and close sales. Pending sales have actually increased which will even out the closed sale numbers slightly as those cross the finish line. A very important note that I will make is that both average and median sales price has increased over the past year. Although your neighbor, family member, or coworker may be portraying doom and gloom or trying convince you that buying as a bad idea on the premise that "prices are going down", the facts certainly show otherwise. This is where out market has bucked trends across the country. Where other markets saw price depreciation following the wake of Covid-19, we have seen continued price growth! Newcomers continue to flock to our area for the same reasons that you and I enjoying living here: family friendly, low crime, economically stable, abundant recreational opportunities, and so much more. This sizeable demand is what has lead to our market remaining steady and even seeing modest appreciation while many other places have seen the opposite. Low inventory continues to assert influence as inventory is sitting at the exact same spot as it was 1 year ago. Difficult affordability has also shown signs of its impact in that the average days on market has increase from 59 to 69 days.

Many of you may wonder why there is SO MANY apartments and townhomes being built. If you have driven through sugar city any time recently, you certainly will have had this thought. It is due to these market conditions. Over time, low levels of affordability lead to a growing rental market. As more people in the valley are priced out of being able to own a home, they will end up renting. It is imperative that we make changes in both our city and county development code to address the affordability issue.

Overall, when it comes to housing in Madison county, you can rest assured that nothing drastic is expected in either direction.

Bare Land

The states for bare land is where things get a good bit more interesting.

All Residential Bare Land Sales (No Commercial)

Supply has shrunk considerably as far as inventory goes for land, down over 16%. Months of supply has been cut by almost 35%. New listings are lagging, down 61%. All of this contributes to not having enough supply to meet the relative demand. For those with an econ background, this means that the price equilibrium point has gone up, way up. Median sales price on bare ground transactions has jumped over 25% in a one year time period. Average sale price has jumped even more but with bare land transactions there are more outliers so the median is a better representation of what is occuring overall. Days on the market has dropped by 33%. Ultimately, land is selling faster and for more money.

Why is this occurring?

There are a variety of factors contributing to why the bare land market has appreciated so much when residential housing has remained stable. Unaffordability of residential housing remains elevated. Building used to be primarily utilized by those looking to move into their "forever home", seeking to get exactly what they want. As an alternative route to homeownership, many first time buyers are opting to buy land first as it is easier to qualify for a loan. They are then opting to pay off the land as quickly as their means allow to use it as collateral for a construction loan. The overwhelming majority of bare land transactions that I have been involved with this past year were with buyers following this plan. As more buyers opt for this solution, land prices will continue to increase. Another contributing factor is restrictive development code with regards to density, We simply are not providing the supply of building lots necessary to keep up with demand. Madison county took a huge step this past november that should help us meet demand better by way of the creation of the rural residential 1.5 zone. For more information on that change, I recommend you read my in depth article covering it. You can find it here: https://www.pstevensrealestate.com/post/madison-county-idaho-s-new-rr-1-5-zone-overview-purpose-and-desired-outcomes . Although this market update is intended for madison county, I do think it is important to note here that fremont county has not taken any big action to address this quite yet. They are in the early stages of reworking their comprehensive plan though, and I am certain this will be an issue that is addressed in that update. Until that happens, and depending on how it is addressed, the high demand will continue to push prices higher.

Looking Ahead

I expect much of the same for the Rexburg market as what occurred during the past 12 months. Residential prices will remain stable, appreciating only slightly, around 1.5%. This is due to a variety of factors but most notably, little expectation of any sizable rate cuts by the Federal Reserve. If these rate cuts do happen at a greater than anticipated amount, we can expect home prices to rise more substantially.

For the bare land segment of our market, I ultimately expect continued appreciation but not quite at the rate that it did this last year. I expect appreciation to range somewhere between 5-7% given our current market conditions.

YOU have an opportunity to directly impact what happens in our market. You can do this by attending both the city and county planning and zoning meetings to make your voice heard during public hearings. It is my personal opinion that commenting in favor of proposed new development will help to ease the upward pressure on prices in our area. But even if you have a differing opinion, it matters and deserves to be heard! I would urge you to please consider attending so that as a community we can address these issues in a manner that balances everyone's interests. If you have additional questions about the state of the market in our area, feel free to reach out and I would be happy to share my insights as a real estate broker here in Rexburg.