Boise: A Case Study in the Housing Boom
Boise: A Case Study in the Housing Boom

Boise: A Case Study in the Housing Boom

In spite of representing approximately 0.2% of the American housing market, it is common to see Boise mentioned in today’s housing news. Boise fits the mold of the bubble city that is, understandably, a popular focus today. (View Highlight)

The price boom, according to Zillow, was really a pretty short burst from late 2020 to late 2021. Since then, prices have continued to rise moderately, on average, in Boise, for another year. (View Highlight)

My model says that in late 2020, the average Boise house was overvalued by about 25%, which was mostly a combination of a 40%+ supply premium and a 20% credit discount, with no cyclical froth. Suddenly there was a cyclical boost of about 35%. But, notice, the cyclical boost peaked in August 2021, and has fallen pretty significantly since then. A combination of rising rents from lack of adequate supply and rising incomes (boosted by recent inflation), kept prices rising in spite of the cyclical reversal. (View Highlight)

Boise has been building more homes because relatively more people are moving there. You might see some people argue that the US doesn’t have a housing supply problem because new homes per capita and even total homes per capita have increased in recent years. (View Highlight)

The red line is declining because population growth has recently been unusually low. But, as you can see, in growing places like Boise, housing production is still at cyclically low levels. (View Highlight)

The last couple of months have seen a sharp decline, but this isn’t that unusual. It will take some time to discern new trends from noise. U-Haul rates are still much higher into Boise than out of Boise, so I don’t think this is a reflection of a sudden downshift in population growth or demand for shelter. If permits continue to fall in Boise, it seems probable that it will follow a similar pattern as the boom cities from 2005 to 2007, with a declining Credit Component and a rising Supply Component, averaging out to a stable trend for the average home. (View Highlight)

There is no reason why a reversion of cyclical trends needs to include nominal declines in prices of a scale that would be discernable from normal seasonal patterns and market noise. (View Highlight)