Even the cool town's RE market's cooling?
Boise’s Housing Market Boomed Early in the Pandemic. Now It Is Cooling Fast.
‘Zoomtowns’ that drew remote workers are now expecting prices to fall as interest rates rise and companies call employees back to the office
By Nicole Friedman, WSJ
July 27, 2022 10:18 am ET
BOISE, Idaho—During the pandemic-fueled housing boom, Boise emerged as one of America’s hottest “Zoomtowns,” communities that experienced a spike in population from an influx of remote workers.
Now, the housing boom around Idaho’s capital city has ground to a halt. Buyers are balking at record prices and mortgage rates that last month hit a 13-year high. Sixty-one percent of listings in the Boise metro area had a price cut in June, the highest rate out of 97 metro areas surveyed, according to brokerage Redfin Corp. Home builders who couldn’t keep up with demand last year are cutting back on construction.
The factors that made the Boise area so alluring, such as its relative affordability and its fewer pandemic restrictions, are less appealing now that prices have climbed and companies are calling workers back to their offices.
When average mortgage rates surged above 5% in April, “it was like somebody just turned the lights off,” said Shauna Pendleton, a Boise real-estate agent for Redfin. “The buyers just disappeared off the face of the earth.”
The slowdown in Boise mirrors what’s happening in housing markets around the U.S. After two years of unrelenting demand that unleashed the biggest housing boom in 15 years, sales activity is cooling and more homes are sitting on the market.
Sales of existing U.S. homes have declined for five straight months. Consumers are nervous that mortgage rates will keep rising, and buyer budgets are crimped by inflation and stock-market declines. Federal Reserve officials have raised interest rates at their past three meetings in an aggressive effort to tame inflation, and they are expected to raise rates again at their meeting this week.
Some of the metro areas that attracted out-of-state buyers early in the housing boom are cooling off the fastest. The metro areas with the most price cuts in June after Boise were Denver, Salt Lake City and Tacoma, Wash., Redfin said.
The supply of homes for sale is climbing nationally, though it remains below prepandemic levels. The inventory of existing single-family homes for sale in Ada County, which includes Boise, surged 179% in June from a year earlier, according to Boise Regional Realtors. In the Austin, Texas, area, active listings rose 218% year-over-year in June, while Phoenix-area active inventory climbed 156%, according to local real estate groups.
“Too many buyers cannot afford housing in this market,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics, which ranked Boise as the least affordable U.S. housing market in the first quarter. “Some markets have become much more overheated than others, and I don’t think we can rule out price declines in some of those areas.”
On a national basis, Ms. Vanden Houten expects a slowdown in price growth rather than price declines. Some small, affordable markets continued to attract home buyers in recent months, according to The Wall Street Journal/Realtor.com Emerging Housing Markets Index.
Boise was the most overvalued housing market in the U.S. in June, according to an analysis of 100 markets by researchers at Florida Atlantic University and Florida International University. Boise-area home values were 69% above what they should be relative to Boise’s long-term pricing trend, the analysis said.
Gabriel and Briana O’Reilly, who were eager to buy a Boise home only months ago, have put their search on hold. The couple, who live in Dayton, Ohio, made three unsuccessful bids for homes in Boise earlier this year. By early May, with prices still steep and borrowing rates rising fast, they decided to take a break. They plan to move to Boise in August so Mr. O’Reilly can start a new job, and they expect to start looking again six to 12 months after that.
“We think the market’s going to be dropping continuously for a while here,” said Mr. O’Reilly, who is 29 and works as a civil engineer.
Price growth is already slowing in the Boise area but remains robust. The median existing-home sales price in Ada County rose 11.5% in June from a year earlier, compared with 48.9% year-over-year growth in May 2021, according to Boise Regional Realtors.
Market watchers expect Boise-area sale prices to drop at least 10% from their peak. Home builders, who built larger luxury homes as prices soared, plan to scale back to smaller designs.
“It did go way too far,” said Corey Barton, president of CBH Homes, the region’s biggest home builder. “It’s slowly going back to the old Boise.”
Corey Barton, president of CBH Homes, said Boise’s housing boom went ‘way too far.’
Boise’s regional population was growing before the pandemic. After stagnating for years following the 2007-09 recession, home prices started to climb in 2016 as people in nearby states realized how much more cheaply they could live in Boise. That in-migration was turbocharged in the past two years by remote work and pandemic-related restrictions in other states.
Brighton Corp., a builder based in nearby Meridian, shut its sales offices for about eight weeks when the pandemic hit, said David Turnbull, the company’s owner. “When we opened them back up, we were just swamped,” he said. “Anything you listed for sale sold within days. You had bidding wars. Boise had never seen that. I mean, this is California stuff.”
The buying frenzy sent the median sales price for existing single-family homes in Ada County soaring to a peak of $586,750 in May—up 79% from three years earlier, and 44% higher than the equivalent national figure. Idaho posted the strongest home-price growth of any state last year, according to mortgage-finance company Freddie Mac.
Ada County and neighboring Canyon County grew 7.8% between 2020 and 2022 to about 782,000 residents, according to estimates from the Community Planning Association of Southwest Idaho. Three Boise suburbs—Meridian, Caldwell and Nampa—ranked among the 15 fastest-growing large U.S. cities in the year ended July 2021, according to the Census Bureau.
Clay Carley, a real-estate developer and fifth-generation Boisean, recalled that Boise used to be so quiet that residents wore T-shirts in the 1980s featuring a black rectangle labeled “Boise at Night.” Now locals complain about the congestion and lack of parking.
“It used to be a secret that no one knew about, but now everyone knows,” said Laura McGeorge, a physician in Boise. It’s harder to get into a restaurant, she said, and she no longer sees familiar faces on the street downtown. She also worries about how much housing prices have accelerated beyond local wages.
“My daughter is going to be a teacher and always wanted to come back here, and I don’t think she’s going to be able to afford it,” she said.
The band Deep Sea Diver plays to a large crowd at an event in downtown Boise.
Floating the Boise River is a popular way to cool off in the summer.
About 26% of new and existing homes sold in the Boise metro area were affordable to households making the area’s median family income of $87,500 in the first quarter, according to the National Association of Home Builders. That is down from 80% of homes sold in the first quarter of 2012. The estimate assumes a 30-year fixed-rate mortgage and a 10% down payment.
The decline in affordability and general economic uncertainty has pushed many buyers to the sidelines, real-estate agents say. At the same time, sellers are listing their homes to take advantage of the high prices before it’s too late.
Some of the people who moved to Boise in recent years are now moving back because they need to return to in-person work, want to be closer to family or didn’t like the outdoorsy lifestyle as much as they expected, said real-estate agent Sheila Smith. Some longtime residents who don’t like how much Boise has grown are moving to more-affordable locales. And investors are cashing out.
“It’s the reversal of the Covid effect,” Ms. Smith said.
Ms. McGeorge and her husband, Frank Mynar, put their Boise house on the market at the beginning of June. A few buyers toured the house but none made an offer. Nearby houses also went up for sale. The couple, who are hoping to downsize to a smaller place in the area, cut the price to $1.58 million from $1.68 million.
Laura McGeorge and her husband dropped the price of their Boise home by $100,000 after buyers proved scarce.
“I feel like I have to hunker down and just be patient,” Ms. McGeorge said. “Selfishly as a seller, I want to sell my house, but I think it’s good for the community to have some correction here.”
Boise-area home builders are starting construction on fewer homes compared with a year ago, and some are cutting prices and offering incentives to attract buyers, said Eric Allen, senior vice president for advisory at housing-market research firm Zonda.
CBH Homes’s average selling price was about $500,000 last year, up from about $350,000 before the pandemic. Mr. Barton said he expects to return to prepandemic pricing to better match local incomes.
“We’ve somewhat run out of the people that were really serious about moving” due to the pandemic, he said. “We’re going to have to safely be back in the $300,000s.”
Many Boise residents, including real-estate agents, welcome the slowdown. About 82% of residents of the greater Boise region, known as the Treasure Valley, said the area was growing too fast in a November survey by Boise State University, up from about 45% in 2016. People who had lived in Idaho for more than a decade were more likely to say the Treasure Valley was growing too fast.
Boise employers have trouble recruiting workers because they can’t afford housing, said Samia Islam, an economics professor at Boise State. Some homeowners have seen their property taxes climb alongside home values. Some feel stuck in their homes, worried that if they sell they will be unable to afford an equivalent home at current prices.
“For the stability of the local economy, I feel that some correction is not necessarily going to be a bad thing,” Ms. Islam said. “In fact, I feel that it’s absolutely needed.”
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Tanya Savage, who is 44 and is self employed, started shopping for her first home in February with a $400,000 budget. She had spent years saving money and improving her credit score, and she was tired of her landlord raising the rent.
Ms. Savage didn’t have a lot of cash to compete in bidding wars. But by May, the market had calmed enough that the seller of a two-bedroom house near the Boise River Greenbelt accepted Ms. Savage’s offer at the $395,000 asking price and agreed to pay $10,000 toward her closing costs.
Still, Ms. Savage’s mortgage rate climbed from 3% when she started shopping to more than 5% by the time the purchase closed in June, pushing her monthly payments higher than expected.
“I feel like I did buy at the peak of the market here in Boise, so there were less people out there hunting because of that,” she said. “But I had to pay more than I really wanted.”
Tanya Savage, a local first-time buyer, received a credit for $10,000 in closing costs from the seller.
Write to Nicole Friedm