North Idaho momentum

It is a testimony to resilience and fundamentals that the North Idaho real estate market — for all property types — remained intact over the past nine months. Roller coasters are fun at amusement parks, not in real estate.

Despite all the negative predictions about interest rates and a recession, buyer demand did not fall off a cliff, and seller expectations started reflecting the reality of higher interest rates and the affordability ceiling. The two sides are nibbling their way toward the middle. The correction the market needed is underway but it is not precipitous, not dramatic. Instead, the higher mortgage rates are acknowledged as normalized, and deals are getting done.

There will be some relaxing of interest rates as the Fed takes its victory lap, having dealt with runaway inflation, but the rate reduction program will be slow enough and small enough so as to not overheat demand again. Economists use the phrase "sticky downwards": prices tend to move up rather easily, but once a market or group of suppliers gets used to enjoying the higher prices, there is a lot of friction that prevents the prices from sliding back as easily as they shot up. This is partly why I am cynical about the Fed’s inflation metrics, and why most Americans don’t feel that the war on inflation has been won, never mind the press releases.

This is true in real estate, where so much equity was built up as prices increased over the past five years that sellers do not face the pressure of over-leverage forcing sales. Lofty home valuations coupled with the lock-in effect of 90% of existing mortgages below 4% means those listing prices are “sticky downward.” Other than in a very few places in the five northern counties, there are limited large-scale tract home subdivisions being developed, where economies of scale and inexpensive finishing specifications might contribute to reasonably priced inventory. More affordable supply would bring down prices, but we are not going to build our way out of the scarce inventory problem. It seems like everywhere you look there are new homes and apartment projects being built, but these developments are not keeping up with in-migration and organic growth (i.e. births and family formations).

Meanwhile, North Idaho presents a multi-dimensional opportunity for growth: look at the difference in character between Bonners Ferry and Rathdrum, between Priest River and Post Falls. It is a rich mosaic of laid-back rural agricultural roots and New Economy innovation initiatives. If you are seeking the lifestyle of a quiet small town, it’s here. If you want a more accelerated pace in an urban setting, that’s also available. That diversity is strength and it means that North Idaho can withstand higher interest rates, a possible recession, indeed, just about any challenge that comes along. Even a force as intractable as climate change does not affect North Idaho as much as the power outages in Texas, the floods up and down the East Coast, the almost biblical plagues hitting California, the acute water shortages in the arid Southwest.

This isn’t hopefully a smug assessment of pure boosterism, rather an acknowledgment of some natural advantages that make North Idaho so compelling, and a great place to invest in real estate. There are challenges in workforce housing, in ramping up the quality of education, improving road networks and sewer/water/internet infrastructure. These are the areas where there is a huge return on investment, and those returns are not limited to purely economic results. These positive and proactive actions create better and healthier communities. Regardless of political ideologies, isn’t that a worthy goal we can all agree on? 

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Raphael Barta is an associate broker with an active practice in residential, vacant land and commercial/investment properties (raphaelb@sandpoint.com).