Its expansive ski resorts, low cost of living and massive hot springs attracted an influx of home buyers during the pandemic.
But is Idaho’s red-hot real estate market about to take a sharp plunge? Experts estimate that homes in the Gem State are now more than 40 percent overvalued after rising demand artificially inflated prices.
And as mortgage rates also rise, residents are at risk of ending up in negative equity.
Real estate platform data Redfin shows that the average cost of a home in Idaho’s capital Boise is currently $515,000. This represents a decrease from the peak of $583,000 in May 2022, but is still well above the cost of $333,029 in December 2019.
So it’s no wonder that experts are worried.
Data from real estate platform Redfin shows that the average cost of a home in Idaho’s capital Boise is currently $515,000. This represents a decrease from the peak of $583,000 in May 2022, but is still well above the cost of $333,029 in December 2019
Americans flocked to rural states like Idaho during the pandemic as a widespread shift to working from home unleashed workers from major cities like New York and San Francisco
“People moving in were attracted by the affordability compared to other Western metros, as well as the natural beauty and outdoor lifestyle,” Redfin chief economist Daryl Fairweather told DailyMail.com.
“But the property market has cooled as mortgage rates have risen over the last 18 months, pricing out many potential buyers.” “Most homeowners – especially those who purchased before 2022 – have a lot of equity in their home.”
This week, a report from Moody’s Analytics found that Idaho is home to the most overvalued real estate in the United States.
Researchers calculated that houses are currently selling for 41.8 percent more than their actual value. On average, American homes are considered 15 percent overvalued.
When conducting the analysis, Moody’s used data from August, when the state’s median home price was slightly lower at $476,000. A slight price increase this month means property prices are rising even further.
The research examined the long-term relationship between property prices and the factors driving demand. Demand was calculated based on household income in the state, household formation and property construction costs.
Matthew Walsh, economist at Moody’s Analytics, said: “If you look at Idaho over the last three years, you’ve seen this extreme increase in home prices since the start of the pandemic.
Researchers calculated that houses are currently selling for 41.8 percent more than their actual value. Pictured: A five-bedroom, four-bathroom home in Sugar City, Idaho, currently on the market for $675,000
A 2022 Idaho Department of Labor study found that the average value of a single-family home increased about 173 percent compared to 2011. Pictured: a 3-bedroom, 4-bathroom home for sale for $624,998 in Sandpoint, Idaho
“So when you look at that relative to the demographic drivers – household formation and income growth there – that increase was much more extreme, which is why we see the inflated valuation of houses there.”
Americans flocked to rural states like Idaho during the pandemic as a widespread shift to working from home unleashed workers from major cities like New York and San Francisco.
At the time, real estate prices were so low that buyers were racing to get them. And Idaho’s picturesque landscapes also provided imprisoned Americans with much-needed respite from inside their homes.
U.S. Census data showed Idaho was the second-fastest growing state last year, with population growth of 1.8 percent.
The increasing demand in turn drove up prices. A 2022 study by the Idaho Department of Labor found that the average value of a single-family home increased by about 173 percent compared to 2011.
But fears of a crash in real estate prices in America are growing across the board.
The housing market was rocked by the Federal Reserve’s aggressive interest rate hikes, which in turn caused mortgage payments to rise.
According to government-backed lender Freddie Mac, the average interest rate for a 30-year fixed-term home loan is currently 7.79 percent. Separate data from Mortgage News Daily suggests interest rates are already at 8 percent for the first time since 2000.
Earlier this month, former analyst Meredith Whitney – once called the “Oracle of Wall Street” – predicted that home prices will collapse next year for the first time in a decade.
When mortgage rates rise and home prices fall, homeowners are at risk of falling into negative equity – meaning the outstanding mortgage balance is greater than the value of their property.
Negative equity can make it difficult to sell or refinance a home – and many feel trapped in their property. The problem escalated into a crisis during the 2008 financial crash, when property prices collapsed overnight.
In July, a report from CoreLogic found that U.S. homeowners had already lost $108.4 billion in home equity so far this year. Researchers estimated that 200,000 properties were at risk of “going under” if prices fell a further 5 percent.
The data found that Idaho properties had already lost $33,000 in equity.
What should you do if you find yourself in negative equity?
Wait out the crisis
With each new mortgage payment, you gain a small amount of equity in your property (unless you have an interest-only mortgage). Then you can weather the storm until property prices rise again and get your equity out of the red.
Consider a dedicated negative equity refinance loan
Although negative equity can make refinancing difficult, there are some special programs to help those who have negative equity. Erica Brenning of Cash Buyers Net said: “One approach is this Negotiate a loan modification with the lender or explore government programs designed to help homeowners facing negative equity.
Consider a short sale
Lenders sometimes agree to a “short sale,” where they accept a lower mortgage repayment amount than the amount owed, in order to facilitate the sale of the property.
Molly Haines of Cash Home Buyers said, “This option allows homeowners to avoid foreclosure and minimize the impact on their credit.”