The supply of homes for sale in the Treasure Valley has fallen to its lowest level since June 2006, when the home-buying binge was first beginning to fade. Mortgage rates remain at or near record lows. On the surface, that seems like a recipe for surging home prices and sales.

But prices aren’t far off their 10-year lows in Ada County and 13-year lows in Canyon.

Why?

There are several reasons. For one, consider Daniel McDevitt. Every time he walks out his front door in Northwest Boise, he fumes as he looks at the condo that got away.

A HARD BUY

McDevitt, 49, made an offer on a Lakeharbor Lane condo with a view of grass and trees in June, while he was still living in Sarasota, Fla. He and his wife, Lori, wanted to move closer to her sister in Boise. They thought they’d found the perfect place: a repossessed condo for $42,900.

Their real estate agent made an offer. After hearing that Fannie Mae, the owner, had accepted it, McDevitt quit his three Sarasota jobs. Two days later, he learned the deal fallen through. McDevitt called Fannie Mae to find out why. A representative said the deal was canceled so the unit could be sold with others as part of a pooled investment.

Needing a home, McDevitt scrambled to buy another condo nearby for $45,000. Instead of trees, it offered a view of the parking lot. Unlike the first unit, it had no appliances and needed painting and new flooring. He said he also was required by the loan agreement to live in it for a year or pay a $5,000 fine — a provision to discourage flipping. He arrived in Boise on Aug. 1 and moved in.

Now he’s discovered the condo that he really wanted is listed for $28,900 — $14,000 less than he was willing to pay. However, the real estate agent said it can’t be sold until the pooled-investment buyer completes the deal with Fannie Mae.

“With me they were so strict, I have to live in it for a year,” he said. “But when they sell it as a pooled investment, they can immediately turn around and sell it. How fair is that to me?”

TOO MUCH DISTRESS

McDevitt’s case highlights the complications of buying and selling in a market dominated by distressed properties.

Two of every three homes sold in Canyon County, and two of every five in Ada County, were distressed, according to the Intermountain Multiple Listing Service. That means their sellers were in such deep financial trouble that their homes had either been repossessed by the bank in foreclosures or were being sold for less than the amounts still owed on the mortgages.

“REO (bank-owned) properties and short sales are a big part of our market, and we’re going to see that for a while,” said Blake Mayes, owner of Blake Mayes Team at RE/Max Capital City in Boise.

Fannie Mae lists 560 distressed Idaho homes for sale on its website HomePath.com, including 256 in Ada and Canyon counties. That doesn’t include homes that need work before they go to market and those the mortgage-backed securities company is still taking back from homeowners, spokesman Andrew Wilson said.

“There’s still tons of loans that need to come through the system,” said Charlie Nate, president of IdahoDataProviders.com, which tracks local foreclosure filings.

WAITING FOR BETTER DAYS

But people who don’t have to sell their homes aren’t selling now, with prices so low. Many homeowners can’t sell because they owe more on their mortgages than their homes are worth.

Some are giving up rather than struggling to make payments. “There’s still a lot of people who are making the decision to let their house go because they are so upside down on the value,” Mayes said. “There’s no way of knowing how much is out there.”

The share of upside-down, or underwater, homeowners in the Valley is decreasing slightly, dropping to 35 percent of all mortgages in June from 36 percent in March, according to market research firm CoreLogic.

Liam Spencer, an agent with John L. Scott Realty in Boise, said underwater homeowners who’d like to sell, and those who’ve lost a lot of equity, are hunkering down to await better prices.

“It’s not because people don’t want to sell their homes — it’s because people can’t afford to sell their homes,” he said.

That limits the market for newly built homes, too. New-home construction remains sluggish. Since 2006, one of every two residential-construction jobs in the Valley has disappeared.

PRICES: MIXED SIGNALS

As homeowners stay put, relatively few homes with for-sale signs are being sold the traditional way — by sellers seeking to move, move up or downsize. With the supply of available housing now 25 percent what it was a year ago, real estate agents say multiple offers are coming in on low-priced distressed homes and those that are priced right by owners — and the properties are moving faster.

In Ada County, at least, there’s some evidence that prices may be starting to rise as supply shrinks. Median home prices were up $23,000 in August from their lows of $135,000 in January and April.

Canyon County isn’t showing such signs of life. The median price this year peaked at $83,000 in June, then fell $4,500 in July and August.

High unemployment is restricting demand even at Canyon County’s bargain-basement prices. The unemployment rate there is 11.9 percent, compared with 8 percent in Ada County.

Tougher lending standards since the financial meltdown of 2008 and 2009 make it hard for some would-be buyers to qualify for loans.

And as rents for apartments and homes remain mostly flat, renting has become a more popular option for young couples and families who have traditionally been the home-sale market’s backbone.

Even if current trends suddenly reversed — if employment rebounded, retail sales soared and foreclosures fell away — there would still be one big potential drag on the housing market: all those houses whose owners are waiting to sell. Too many such sellers at once could keep prices low.

“Too many people are cemented in their current homes and unable to take advantage of lower prices and record interest rates,” said Mike Gamblin, a Boise real estate broker and owner of the Idaho Real Estate School.

SO WHAT DOES THE FUTURE HOLD?

Some real estate agents, like Spencer, are optimistic. He notes that Idahoans aren’t the only people buying homes here. Out-of-state buyers, including retirees and semi-retirees, are fueling home purchases in Southeast Boise and elsewhere.

Idaho Transportation Department records show that after several years of decline, in-migration bottomed out in 2009 at 7,000 and rose to 8,000 in 2010.

Spencer’s most recent out-of-state clients, a central California couple, purchased a 3,500-square-foot home in Middleton built in 1904. The husband, in his 50s, is retired; the wife is a nurse.

“People are seeking quality of life,” Spencer said. “They may be part-time employed or retired, but they still need services. And it will expand our employment base here.”

Spencer said homeowners can expect home values to rise about3-4 percent a year, but it could be a decade before they get close to 2006 prices.

Former state economist Mike Ferguson says sellers should not hold their breath. He points to data showing that prices in the first half of the last price appreciation were closer to the rate of inflation.

“Those (2006) peak levels were so unrealistic,” Ferguson said. “They’re just coming back to normal.”

Sandra Forester: 377-6464