How overvaluation may indicate a future slowdown in the Boise Housing Market

The Idaho housing market is in the middle of its ninth year of competitive growth and high prices, and those looking to purchase are ready for a reprieve. The marathon of development saw Ada County’s median single-family home prices break records for the second time this year. But all this growth begs the question: is it sustainable? Industry analysts say no.

A report by Fitch Ratings has been making the rounds recently for the conclusion it drew about home prices in Idaho: they are overvalued by 20-24%. But what does that mean? If consumers are paying, then who determines overvalue? That is the question those in the industry are asking in the face of continuing reports of an inevitable slowdown in the west-coast exodus and a cooling housing market overall.

Overvaluation in Idaho

Put in perspective, the Fitch report put Washington’s overvaluation at 9%, while home prices hit a median sale price of $368,000. California’s rate of home price overvaluation is a meager 5%, despite Zillow listing the median sale price of homes in that state at nearly half a million dollars ($497,500). Meanwhile, Ada County hit $342,990 in May, according to Intermountain Multiple Listing Service (IMLS), but has an overvaluation rate of 25%. So why are Idaho homes more overvalued than California homes? It comes down to one key metric: Income.

Overvaluation is determined by comparing changes in housing and rental prices with income and employment data. In Idaho, median income hit $52,225 in 2017, a growth rate of 0.8%, according to Data USA. In the same year, the property value of Idaho homes rose 9.35%.

Comparatively, Washington’s median household income rose to $70,979 and California’s to $71,805, a 10.6% and a 6.68% median property value growth rate respectively. Meanwhile, the median income rose 10.6% in Washington and 6.68% in California. Sustainability in the housing market is measured by similarities in these growth metrics; in Idaho, there is significant and increasing disparity. It is this gap between income and property value growth that causes industry analysts to predict a slowdown of Idaho’s real estate market in the near future.

Signs of a Slowdown

Predictions aside, are we seeing signs of a slowdown currently? Nationally, yes. In Idaho, time will tell.

A report by MarketWatch found that average gross profit from national home sales in major markets have been on the decline in 2019, while CoreLogic concluded that home-price growth is still rising across the country, but more slowly than a year ago. In Ada County, we see the same. IMLS data shows slower rates of growth in the first quarter of 2019 than in quarter one of 2018; however, percent changes in the market are still rising faster than in 2017.

What this means for Treasure Valley Markets:

2018 was an explosive year for growth in the Treasure Valley, which might not be met in 2019. With home appreciation expected to rise 8.7% by 2020—potentially the third-fastest appreciation rate in the nation—the housing market can only tighten. High prices will incentivize home builders, but for the growth to be sustainable, Idaho incomes must also be on the rise.

According to current data, it is unlikely to expect a significant slowdown of the housing market anytime soon, though a slowdown within the next few years may be inevitable at the current income to housing growth ratio. For those of you looking to purchase a home in the Treasure Valley, now may be as good a time as any.

What do you expect from the housing market in the coming years? Does it seem a slowdown may be on the horizon? Do you see a slowdown being positive or negative for Idaho overall, and if a slowdown is preventable, how? Please find on social media and share your thoughts, questions, or comments: we can’t wait to hear from you.

By: Jake Nuttal