Printed on: January 10, 2013

First-time home buyers enjoying post-recession market

By Zach Kyle
zkyle@postregister.com

Michael and Aimee Bedder thought they could do better than their cramped, outdated rental house.

Sure, at $550 a month, the house on Royal Avenue was affordable, but it smelled like cigarettes, and water backed up into the bathtub on laundry day. And the kitchen was tiny, forcing the Bedders to store kitchen appliances in another room.

They started looking at homes for sale and were surprised at how far their dollar could stretch.

In November, they closed on their first house, a three-bedroom home on Idaho Avenue. They pay a $500-a-month mortgage, which goes into equity instead of a landlord's pocket.

The 20-somethings now have ample space for any children who come along.

"We're saving money every month for a bigger, nicer house with fewer problems," Michael Bedder said.

Buyer's market

The Bedders aren't the only house-hunters taking advantage of record-low interest rates.

Year-over-year home sales jumped 19.5 percent in 2012 to 1,218 on the county's multiple listing service, which counts all homes and condos sold by realtors.

Sub-4 percent interest rates are driving sales, said Tina Miller, president of the Greater Idaho Falls Association of Realtors.

Saving one point on interest can bump the final costs for a $100,000 home down $10,000 or more depending on the loan, she said.

Considering a good rate in 2007 was 6.75 percent, Miller said the real estate game has become a buyer's market.

"Even at 7.25 percent, people weren't squawking (in 2007)," Miller said. "When a rate was below 6 percent, we were in heaven. I don't know how long they can keep rates down like this, but it definitely helped the market. Buyers can afford more house."

Miller said she sold 64 homes last year -- several with fixed, 30-year loans sold in December at rates around 3 percent.

The Bedders closed at 3.89 percent, paying a slightly higher rate to reduce their monthly mortgage insurance payment.

"It's definitely one of the better times to buy," Michael Bedder said. "Just a couple of points of interest can save you 100 bucks a month. If people are in a position to do it now, I'd say do it. (Rates) aren't going to get much lower."

Distressed properties and construction

Many of the homes aiding post-bubble sales are the same properties that burst the bubble in the first place.

Distressed properties -- homes sold for less than their purchase price or foreclosed upon by banks -- accounted for 24.5 percent of homes sold on the listing service in Bonneville County last year.

Miller said half of the sellers she worked with last year were upside down on their homes, meaning they owed more on their mortgages than their homes were worth.

Banks are backlogged with foreclosed properties or homes in the foreclosure process, meaning distressed properties could help suppress home prices for years to come, Miller said.

"At some point, banks have to get rid of their inventory. (Distressed properties) will trickle out on the market," Miller said. "It's building like (water behind) a dam."

While good for bargain-hunters, the backlog of distressed properties doesn't help the construction industry.

Builders filed 114 permits for single-family residences with the county planning and zoning department in 2012, down from 122 the year before and 446 lower than the peak in 2005.

The story was better for builders in Idaho Falls, where the city building department issued 134 permits last year after a recession-low of 60 in 2011. But that increase was negligible compared to annual averages of more than 300 before the recession.

So while distressed properties benefit buyers by suppressing prices, they mute the economic growth in construction and building-supply business that home sales would provide if the houses were newly built.

Bonneville County enjoyed a record construction valuation of $104.8 million last year; however, it was commercial projects -- including the Meadow Creek Wind Farm project, worth more than $51 million -- that drove that number.

The county's construction industry won't be fully recovered until more homes are being built, said Steve Serr, county zoning administrator and building official.

"We are growing," Serr said. "We're doing a lot better than other counties. And I don't mean to be negative, but in order to say we're in a (building) boom, I would also think the residential building would be there. And it's not."

Changed game

Homeowners such as the Bedders aren't the only buyers playing the market.

Investors looking to buy houses and then resell them at a profit returned to the game after sitting out the recession years, Miller said.

Investing in homes isn't as lucrative as it was during the decade preceding the recession, when home values rose meteorically and lending institutions fueled the problem by loosening loan requirements.

Investors mostly dropped out of the market in the recent years as they waited for lenders to correct their problems, home values to settle and interest rates to drop, Miller said.

Some of those investors were confident enough that the volatile period has subsided and started buying again in 2012, Miller said.

"As the rates got lower, (investors) got a feel for the new game," Miller said. "... The opportunities are different, but they are there."

Buyers and lenders learned hard lessons from the bursting bubble, Miller said.

People are more cautious when applying for loans, she said. Banks are more cautious in giving them.

That hesitancy stymies the market to some extent, Miller said. But it also ensures the growth is built on a solid foundation.

"Now, we're back to a mentality that you have to sacrifice a little bit and save (for a down payment)," Miller said. "People are more prepared to buy a home now. Lending has stabilized and become more user-friendly, and that has helped tremendously.

"I think time is healing some of what was wrong."

Zach Kyle can be reached at 542-6746. Comment on this story on Post Talk at www.postregister.com/posttalk/.

Bonneville Co. housing

Year homes and condos sold median price

2004 1,280 $119,575

2005 1,627 $135,000

2006 1,696 $144,900

2007 1,682 $157,900

2008 1,232 $159,900

2009 1,143 $147,000

2010 1,066 $140,474

2011 1,019 $134,000

2012 1,218 $132,750