Fortune.com published an article on August 26 showing a list of “overvalued” home markets. Right at the top of the list is Boise, Idaho selling at an 80.64% premium. What does this mean?
First of all, using the term “overvalued” makes it sound like the value isn’t really there. That a Boise homebuyer isn’t getting what they’re paying for, and that 80% of the investment they’re making in their home can simply disappear. Let’s dig a little deeper.
The Florida Atlantic University study the article was based upon used the Zillow Home Value Index over the past 25 years as a base point. Meaning that we’re comparing today’s home prices to home prices as far back as 1996. The graph below from the St. Louis Fed shows what’s been happening to Boise area home prices over time. This is what we’ve all seen over time, the home prices in Boise have gone up dramatically.
So home prices have gone up, but are they “overvalued”? This is a supply/demand issue. We’ve all seen those “greatest places to live” articles over the past 20 years that show Boise near the top of every list. That creates interest in the area and people wind up moving here. If the supply of homes can’t keep up with new demand (new local households being formed and looking for homes along with people relocating from other places) then prices increase.
The associate dean at FAU’s College of Business makes this statement:
“In the Top 10 markets, potential buyers might want to consider renting and reinvesting money that they otherwise would have put into homeownership.”
That actually proves that Boise’s home market isn’t overvalued but is actually responding to market demand. If home prices were truly higher than they were actually worth, then renting would be a viable option. This article by local news site boisedev.com shows how rent prices in Boise are increasing at the fastest rate in the country. Whether people are planning on renting or buying, there’s more demand than the market can currently meet.
Boisedev.com also refutes use of the word “overvalued” by the Fortune.com article and FAU study in an interview with a local real estate broker here.
This may sound a little nitpicky. We all agree that Boise home prices and rent costs have increased dramatically. But we shouldn’t be afraid that we’ll suddenly lose 80% of the value in our homes. Those prices are supported by market demand and people wanting to live in a highly desirable area.
