Boise area's house-affordability problem has become serious

You knew that skyrocketing prices have made Boise-area houses increasingly unaffordable. A new national report suggests just how serious the Treasure Valley's problem has become in the past five years.

Between 2014 and the third quarter of 2019, the median price of a single-family home in the Boise area increased 75%, to $303,100 from $172,900, according to the study by the National Association of Realtors, the trade association for real estate agents. The increase in home prices was quadruple the 18% growth rate in median family income, which rose from $62,000 to $73,101 by the association's estimate.

The divergence between prices and income created the largest drop in affordability among the nation's top 174 metro areas, the Realtors said.

And that's not all. Affordability has worsened to the point that it is starting to stunt the Boise area's job growth, the Realtors say, as it already has in Portland and Seattle.

"I'm beginning to sense the dropping unaffordability of Boise is beginning to hinder job-growth potential," said Lawrence Yun, an economist for the Realtors, in a phone interview with the Idaho Statesman.

Workers may not be feeling any job-growth impact yet, because unemployment is still so low here — 2.4% in December — and help-wanted signs are prevalent. The local economy remains strong.

Last year, nonfarm employment grew 3.2% in the Boise metropolitan statistical area, which includes Ada, Boise, Canyon, Gem and Owyhee counties. Between 2014 and 2018, the average annual job growth was 3.9%, Yun said.

Craig Shaul, research supervisor for the Idaho Department of Labor, isn't ready to go as far as the Realtors on housing prices' potential job-growth impact.

"It's possible that the Boise MSA's deceleration of total nonfarm growth is due to housing affordability and home prices, but I would not attribute it to being the primary factor at the present time," Shaul said by email.

That view finds support from Robert Spendlove, an economist for Zions Bank in Salt Lake City.

"The unemployment rate is so low and the labor market is so tight it's becoming more difficult to maintain that kind of growth," Spendlove said by phone.

Boise, Idaho
Unique view of autumn colors and the city of Boise Idaho

Shaul said there are indications the quarterly census of employment and wages, which was released Friday, undercounted total nonfarm jobs. Revised figures will be released March 16 and those may show an increase in jobs from the 135,773 reported Friday, he said.

"As such, I would refrain from linking housing affordability as the cause of job-growth deceleration," Shaul said.

Shaul acknowledged that home prices and affordability do lock out some of the potential new talent that would otherwise move to the state for employment.

"It's a challenge that many Idaho communities are facing," he said.

Yun said housing costs could put the brakes on companies considering relocating to Idaho from California and other states with higher costs.

"If home values are very high, that also means that trying to recruit people at the same wage will be difficult," said Yun. "They may have to offer a higher wage."

Boise wages grew a modest 2.2% from the second quarter of 2018 to the same period in 2019, according to the U.S. Bureau of Labor Statistics.

Worsening affordability is a nationwide problem. Nationally, 81 of the top 174 metro areas examined in a recent National Association of Realtors study saw their housing affordability ratings decline. Like Boise, 33 of those areas saw nonfarm job growth decline faster in the third quarter of 2019 than the national rate over the previous five years.

Boise and those other areas — including Tampa, Nashville, Grand Rapids, Indianapolis, Louisville and Columbus — need added housing inventory to make homes more affordable, Yun said.

"More supply needs to be built to change the price growth or at least stabilize it," Yun said. "If there's insufficient supply, that means prices will continue to rise strongly, and at some point it's going to choke off potential buyers as it makes it a less attractive place to live."

The number of building permits issued in Boise fell 3% last year, while nationally they increased 8%. The shortage of homes is forcing more people to rent.

Rents are rising too, partly because of demand from people who cannot afford to buy.

Like homebuilders, apartment builders are busy, but they're not keeping up with demand. Since 2015, developers have built 3,581 new rental units in Ada County, bringing the total to nearly 19,000. An additional 1,542 units were under construction late last year.

Of course, fast-rising prices have an upside. They bring profits to builders, house sellers and apartment owners, and they attract new development that eventually could moderate price increases.

In fact, if you want to invest in apartments, Boise is the best place right now to do it, one website says.

Millionacres, a real estate investing website operated by The Motley Fool, this month named Boise as the No. 1 market for rental investment. It concluded that surging home prices and lagging single-family home construction make Boise a better market for renting than buying.

Given Boise's population growth, along with soaring home prices and flat wages, "rental demand in the area will be unstoppable for the foreseeable future," Millionacres said.

Millionacres noted that the Boise metropolitan statistical area registered a 2.9% increase in population between 2017 and 2018. That eclipsed Idaho's overall increase of 2.1%, which led Idaho to tie Nevada as the fastest-growing states in the nation.

Millionacres points to the Boise area's 20.9 price-to-rent ratio for its conclusion that it's better for consumers to rent here than buy. The ratio is calculated by dividing the median home price by median yearly rent.

A price-to-rent ratio of 21 or greater indicates it's much better to rent than to buy. The ratio for Portland is 29.3, while in Seattle it's 36.1. The highest ratio in the nation is 50.1, in San Francisco. The median price of a single-family home there is $1.6 million.

Despite the rising prices, a large number of Boise residents can still afford a home, said Jared Cook, regional manager of Zions Bank's home finance division.

In 2018, the median household income in Boise was $63,137, according to the U.S. Census Bureau. (That's lower than the Realtors' latest estimate. The Realtors made their estimate after considering the change in the average weekly wage between September 2018 and September 2019 to the Census Bureau's 2018 estimate.)

"If median-income borrowers here in Ada County didn't have any other debt and have 5% for a down payment, they could qualify for a $325,000 to $375,000 home," Cook said in an interview.

In December, the median price of a single-family home was $350,000 in Ada County and $255,000 in Canyon County, according to the Intermountain Multiple Listing Service.

Low mortgage rates are helping: They enable buyers' dollars to go farther. On Thursday, mortgage buyer Freddie Mac reported the average rate on a 30-year fixed-rate mortgage fell to 3.6%. That's the lowest rate in three months.

Zions Bank, which saw a 23% increase in mortgage applications in Boise in 2019, expects the trend to continue.

"The driver more than anything was interest rates," Cook said. "A year ago, they were almost 1% higher."

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