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Idaho house prices are so high that this Wall Street firm warns of ‘sharp slowdown’

As prices rise, home building booms from Boise to Caldwell

Home construction is booming from Boise to Caldwell in Southwest Idaho, but home prices are still setting records, worsening the shortage of affordable housing for moderate-income buyers.
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Home construction is booming from Boise to Caldwell in Southwest Idaho, but home prices are still setting records, worsening the shortage of affordable housing for moderate-income buyers.

While Ada and Canyon county home prices keep setting records, a credit rating service warns that Idaho home prices are among the most overvalued in the nation.

Fitch Ratings estimates that home prices in Idaho are overvalued by 20% to 24%. That ties the Gem State with Nevada for the highest overvalued prices in the nation.

“The combination of above-average home price growth and below-average income growth causes us to be concerned that home price growth isn’t sustainable and is now increasingly vulnerable to a sharp slowdown or price correction,” study author Grant Bailey said in an email to the Idaho Statesman.

The Wall Street analytical firm weighed five metrics in determining the most overvalued housing markets in the nation: change in home prices, change in rental prices, nominal income growth, population growth and unemployment.

Last year, home prices jumped 16.3% in the Boise area, far higher than the 3.7 increase in incomes, the Associated Press reported.

Despite a low unemployment rate that has hovered between 2.7% and 2.9% over the past year, “real income growth has been slacking,” Bailey said.

Real income, which measures buying power, grew 1.7% nationally between the first quarter of 2018 to the first quarter of 2019, but just 0.5 percent in Idaho, Fitch Ratings said.

Idaho’s home prices have been overvalued for several years, Fitch Ratings said. They were overvalued by 10% percent to 14% in the first quarter of 2017 and 15% to 19% in the first quarter of 2018.

Mike Turner, an agent with Front Street Brokers in Boise, disagrees with the assertion that Boise’s market is overvalued. He said the market is being dictated by high demand and low supply.

“Is it overvalued?” he asked. “I look at places like Seattle and Portland, where I see a lot more frenzied activity. Those areas make me way more nervous.”

Demand is so great that if the economy melted, it would have little immediate effect on local home prices, he said.

“It would likely still take a year or two for home prices to significantly change, because there’s so little inventory,” Turner said. “There’s so much pent-up demand.”

Fitch’s analysis says Portland home prices are overvalued by 10% to 14%, while the Seattle market is “sustainable,” after having been rated as overvalued by 5% to 9% during the first quarters of 2017 and 2018.

Seven of the nation’s biggest metropolitan areas had prices that Fitch determined were overvalued in the first quarter. Prices in Phoenix and Dallas-Fort Worth were 10% to 14% too high. Denver, Atlanta and Tampa were high by 5% to 9%.



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Fitch estimated that home prices in about a fifth of the nation’s metropolitan areas are more than 10% overvalued. Nearly half of those counties are in California, Texas and Florida.

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Reporter John Sowell has worked for the Statesman since 2013. He covers business and growth issues. He grew up in Emmett and graduated from the University of Oregon.If you like seeing stories like this, please consider supporting our work with a digital subscription to the Idaho Statesman.
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