Real Estate Activity in Idaho Indicates Improving Economy

Economic conditions in Idaho were strong through September, a trend that began in early 2010.

Commercial Vacancy Rates

Commercial real estate is a good indicator of whether employers are expanding or businesses are starting up or contracting or shutting down.

According to Reis Inc., a commercial real estate research firm, vacancy rates in the Boise metro area – the only area in Idaho with data – remained high through 2013. The retail market hovered around 18 percent compared with 9.5 percent throughout the country’s western region and 11 percent nationwide. Office vacancies were slightly lower, lingering around 17.5 percent to essentially mirror the 17.7 percent regionally and 17.1 percent nationally. Boise’s downtown core has a significantly lower vacancy rate at 10.6 percent than the outlying areas with 22.5 percent.

A different survey recently released in the Spokane-Kootenai Real Estate Research Committee’s Spring 2014 Real Estate Report, showed office vacancy rates improving around Kootenai County from 13.5 percent in 2012 to 10.2 percent in 2013. The survey, conducted by Valbridge Property Advisors/Auble, Jolicoeur Gentry Inc. also included the industrial market, where the vacancy rate fell from 9 percent in 2012 to 7.7 percent in 2013. Retail, however, held steady at 9.4 percent. Coeur d’Alene recorded the highest office vacancy rate at 11.5 percent of the five communities in the county that were surveyed but some of the lowest in retail at 7 percent and industrial at 5.9 percent.

Population fluctuations have an influential effect on real estate, both commercial and residential. Overall population growth has been modest but started gaining momentum in recent years. Idaho’s working age population remains the largest segment of the overall population but is growing at a much slower rate compared with projected job growth.

Population growth table

Residential Construction

Population growth means increased housing demand, and each demographic has different housing needs.

Preceding construction activity, total building permits statewide hit nearly 6,300 for 2014 through August, the highest level since 2007. However, single-family building permits were down 7 percent, reflecting the large influx of multifamily units in to market.

res construction permits

Residental permits by MSA

percent change in type of building permits

Housing starts were up 26 percent from 5,539 in 2012 to 6,992 in 2013, but single family housing construction was down in 2014 as many developers struggled to find dirt to move. Attractive lots are in short supply and housing starts in Idaho so far are at 1991 levels.

There were 491 housing starts statewide in August – the historic trend has been higher. With four months left in the year, Idaho was down 14.4 percent from 2013.

After reaching an historic high, home vacancy rates are at their lowest levels since 2005. Low vacancy rates have potential to drive up housing prices. In the simplest terms, a rise in house prices creates a wealth effect and leads to higher consumer spending. In contrast, falling house prices cause lower consumer spending and bank losses. Economic growth encourages consumers to borrow and banks to lend.

According to the Federal Reserve, the sharpest increase in house prices recorded in U.S. history was between 1998 and 2006. The Federal Housing Finance Agency puts out a housing price index of broad measures of the movement of single-family house prices. It is designed to capture the changes in the value of single-family housing.

The index placed Idaho as the 12th fastest growing state in housing prices or values during the second quarter of 2014 – 6.6 percent above the same months in 2013. The Boise metro area sustained the greatest gains over the year compared with other metro areas.

FHFA Price Index

Change in FHFA price index

House prices are rising, but at some point they will meet a “pricing out” effect. According to the National Association of Home Builders, a $1,000 increase in the cost of a home means about 26,000 households nationwide are priced out of the market for a median priced home. The extent of the impact varies across metro areas, depending largely on population and income distribution. The table below summarizes how many households would be “priced out” according to the NAHB model in each of the metropolitan areas across Idaho.

Households priced out, regional economist
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