Boise's meteoric rise to prominence as a "Zoomtown" during the pandemic was nothing short of remarkable as remote workers, untethered from traditional office spaces, flocked to the city, driving housing demand to unprecedented heights. The city's allure, fueled by its relative affordability compared to tech hubs like Seattle and San Francisco, saw local home prices skyrocket 63% from March 2020 to May 2022.
However, this euphoria was tempered by last year's rapid hike in mortgage rates, which pushed Boise's housing market into a correction. The aftermath was a 12.8% drop in Boise home prices between May 2022 and January 2023, according to Freddie Mac. That's a reminder that even the most vibrant markets can be vulnerable to house price declines.
This spring, that home price correction lost momentum as Boise experienced a 1.9% house price uptick from January to May 2023. Yet, beneath that rebound lies a debate: Is the spring price gain a sign of genuine recovery, or simply a seasonal head fake? After all, the seasonality of housing, which is seasonally the strongest in the first half of the year, can lead to temporary price jumps, even in markets undergoing corrections.
The recently published June reading for the Freddie Mac House Price Index suggests that Boise's spring bounce for existing home prices might indeed be a head fake. According to the repeat sales index, Boise home prices fell 0.2% in June after rising just 0.1% in May.
Among the nation's 100 largest housing markets, only three saw month-over-month price declines in June: Austin, Texas (-0.1%); Boise (0.2%); and Honolulu (-0.3%).
View this interactive chart on Fortune.com
Upon initial examination, Boise's -0.2% month-over-month decline in June might appear inconsequential. However, a deeper analysis of the data through the lens of seasonality might suggest otherwise. Typically, when regional housing markets experience a month-over-month decline in June, it sets the stage for further declines as the housing market navigates the seasonally weaker second half of the year. Furthermore, it's worth noting that Boise's home prices have declined on a month-over-month basis in June just six times over the past three decades: 2007, 2008, 2009, 2010, 2022, and 2023. In all of those previous years, Boise's home prices went on to decline in the second half of the year.
Why is Boise, in particular, at risk of further house price declines? It boils down to fundamentals.
Industry experts, like Moody's Analytics, voice concerns that Boise's housing affordability has veered significantly from local economic fundamentals, even factoring in income gains. The influx of remote workers, while driving demand, has disrupted the market's equilibrium and pushed prices in spring 2022 beyond sustainable thresholds. The sharp mortgage rate escalation from the previous year has only intensified the affordability challenge.
According to Moody's Analytics, Boise's housing market was 54% "overvalued" at the end of Q1 2023. While that's down from the peak when Moody's found Boise "overvalued" by 71% in Q2 2022, it's still far above Q1 2019 when the market was "overvalued" by 28%.
Being "overvalued" doesn't mean home prices have to come down further. Historically speaking, housing markets can remain "overvalued" for years, and when fundamentals do improve, it's often through rising incomes—not falling home prices. However, when a market is "overvalued" by as much as Boise was at the height of the pandemic ("71%"), outright price declines often follow.
View this interactive chart on Fortune.com
There's another reason that markets like Boise—and Austin—are at higher risk of further house price declines: Those overheated markets actually have some inventory.
On a national level, active listings on Realtor.com (otherwise known as "inventory") in June 2023 were down 47% from June 2019 levels. But in Boise, active listings in June 2023 were only down 13% from June 2019, while also up 80% from June 2021 (i.e. at the height of the frenzy).
The presence of relatively higher levels of existing inventory for sale in Boise and Austin implies that these markets are more prone to experiencing price softening as the transition occurs from the seasonally robust first half of the year to the seasonally milder second half of the year.
At the end of June, Boise existing home prices were down 11.2% from its May 2022 peak while also still up 44.6% since March 2020.
Want to stay updated on the housing market? Follow me on Twitter at @NewsLambert.
