Housing Market Fever Starts to Break in Boise

If you’re wondering where the U.S. real estate market might start to show its first cracks, keep an eye on Boise, Idaho.

Housing Market Fever Starts to Break in Boise
An 'Available' sign outside a home in the CBH Homes Calvary Springs Community in Nampa, Idaho. (Photographer: Kyle Green/Bloomberg)

If you’re wondering where the U.S. real estate market might start to show its first cracks, keep an eye on Boise, Idaho. The pandemic work-from-anywhere revolution transformed it into one of the hottest markets in the U.S., but home prices are leveling off there. Typical home values in Boise rose just 0.4% last month, down from a 4.1% monthly pace in June, according to Zillow data. That makes it the first of the country’s top 100 housing markets to flirt with falling prices this year.

Housing Market Fever Starts to Break in Boise

The incredible pace of gains was never going to be sustainable, of course, and that’s true of many of the pandemic-era miracle markets, even if you’re ultimately bullish on their long-term prospects. The slowdown is hitting some Western mountain towns now, but it’s also likely to catch up with Austin, Texas; Phoenix; and Tampa, Florida, among others. For all their lifestyle appeal and relative value compared with California or New York, some of these markets compressed a decade worth of home price appreciation into a couple of years — a development that became downright unhealthy. 

According to Oxford Economics, Boise home prices are now about 70% higher than what the median household income of city residents suggests they can afford, worst in the U.S. when Oxford last updated its ranking. “It’s making it harder for first-time homebuyers and locals to afford houses,” Oxford Economics economist Oren Klachkin told me. Typical home prices in the Boise metro area have climbed more than 76% above their long-term trendline, also the biggest such divergence in the nation, according to another model by researchers at Florida Atlantic University and Florida International University. Some of the momentum began before the pandemic, but it went into overdrive in 2020. 

To be sure, slowing growth doesn’t necessarily mean that prices will start to drop. Many of the buyers are coming from elsewhere, including well-paid Californians still cashing in on the remote work arbitrage. Boise is far cheaper than San Francisco or Los Angeles, just as Tampa is a tremendous bargain for New Yorkers. Many buyers are paying cash, and they may be somewhat insulated from rising mortgage rates. But a snapback is entirely possible in some of these places, and it makes sense that it would happen soon with many companies imploring workers to return to offices in the expensive coastal cities they came from.

When the momentum turns, it’s the expensive category that gets hit first. As Zillow Senior Economist Jeff Tucker pointed out, San Francisco housing prices actually declined year over year in 2019, the last time mortgage rates were relatively high and the country was worried about potentially dipping into recession. Perhaps Boise will be this year’s San Francisco.

Overall, housing inventories near record lows are likely to buoy housing prices somewhat nationally unless interest rates jump much higher, a possibility that can’t be ignored. Unlike the Great Recession housing bust, household finances are strong, and many buyers have locked in long-term mortgage rates below 3%, giving them little incentive to sell in a rush and accept discounts. The market is just entering the traditional spring buying season, and the large pool of millennial homebuyers still has extra cash saved up from the pandemic. 

But Boise’s wobble might be a sign of things to come for some of these pandemic hot spots — places where the housing market just got too far ahead of fundamentals. Ultimately, it will be healthy to flush out some of those market excesses, and in the long run, it may help Boise residents as well.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Jonathan Levin has worked as a Bloomberg journalist in Latin America and the U.S., covering finance, markets and M&A. Most recently, he has served as the company's Miami bureau chief. He is a CFA charterholder.

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