National analytics firm predicts Boise home prices will soon fall. Here’s what we know
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Affording Boise: Homeownership
Soaring rents. Skyrocketing home prices. The double-digit rates of increase in the costs of Boise-area housing until 2022 have created increasingly urgent problems for low-income, working-class and even moderate-income Idahoans who need places to live. Affording Boise is a series of Idaho Statesman special reports on housing. This collection focuses on homeownership. A separate collection focuses on rental homes, including apartments.
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Boise’s housing market has already shown signs of cooling. Now a financial analysis company predicts Boise will lead the nation in home price drops in the next year.
According to Moody’s Analytics, Boise’s prices will drop because the market is “overvalued” by 70%, one of the highest rates in the country.
Moody’s Analytics Senior Economist Todd Metcalfe said he expects national price growth to level out. In places like Boise, defined as being “overvalued,” there’s potential for bigger drops, around 5% to 10%.
Moody’s report says there’s a 71.1% probability of house price decline in Boise, the highest percentage in the country. Pocatello, at 64.2%, and Idaho Falls, at 59.5%, also cracked the top 10 at third and eighth, respectively.
The decline, Metcalfe predicts, won’t be a crash. Demand could remain if Boise stays more affordable than higher-priced coastal cities and if the pattern of remote workers moving here continues. But he anticipates the speed at which people move here will slow.
“It’s not going to be an immediate price decline. It’s not going to be strong,” Metcalfe said. “… The prices that have been reached just aren’t supportable based on the income levels of the area. At some point people can’t afford to pay anymore. It doesn’t matter how much you ask. If they can’t afford it, they can’t afford it.”
Boise is showing signs of slowing already. Instead of packed open houses, waived inspections and bidding wars as Boise had last year, real estate agents have observed fewer buyers and less frenzy in the market recently.
Boise remains a strong seller’s market, but as interest rates rise and buyers grow cautious, the market could tilt in buyers’ favor.
The “overvalued” metric means homes are expensive relative to incomes. A new report from researchers at Florida Atlantic University and Florida International University had similar findings — Boise is the most overvalued housing market in the country — based on a statistical model determining expected prices compared with actual prices.
“It’s a story of in-migration,” Metcalfe said by phone. “It’s a story of it being a desirable market where a lot of people were bidding and a lot of people were able to bid high compared to what prices had been. That really drove up prices.”
But that price appreciation isn’t feasible in the long term, Metcalfe said.
Moody’s analysis studied whether fundamentals, like local income levels, could support local home prices.
Boise-area home prices have recently risen four times as fast as wages, the Idaho Statesman reported in May.
A major driver of fewer buyers recently has been interest rates rising from historically low rates of around 2% or 3% to 5% and higher. Prices are frequently coming down to accommodate buyers’ smaller buying power.
“The relationship between house prices and wages is such a strong shift now that it basically can’t be sustainable,” Metcalfe said.
Predictions, as always, come with caveats. Prior to the COVID-19 pandemic, economists didn’t predict Boise to become as big of a hot spot for home price appreciation as it did. From March 2020 to May 2022, the median price of a home in Ada County has increased 64.1%, according to the Intermountain Multiple Listing Service. The median price in May was $602,250.
Joel Hess, owner and managing broker of Realty One Group, recently told the Statesman that about half his clients include at least one remote worker per family. If they maintain wages from their job elsewhere, that could distort the “overvalued” calculation, which is often based on local income.
The most “overvalued” markets, according to Moody’s, are in the Mountain West and Southeast and attracting newcomers who can work from home. Pocatello, overvalued by 54%, was ranked seventh. Coeur d’Alene, at 53%, was ranked ninth.
This story was originally published June 15, 2022 at 4:00 AM.
