The Impact of High Mortgage Rates on Idaho’s Real Estate Market

Idaho’s housing market, like much of the country, is in a tough spot with high interest rates preventing many people from buying or selling homes.

We’re all just stuck, waiting for things to change, said Sam Wolkenhauer, an economist with the Idaho Department of Labor.

During a webinar, Wolkenhauer discussed the current state of the housing market in Idaho and across the U.S., comparing it to the 2008 housing crisis. Fortunately, he noted that today’s situation is different, and there’s no sign of a major crash like the one that happened back then.

Housing prices have surged both nationally and in Idaho, where the median price for a single-family home is over $500,000—higher than the national median of around $430,000. But Idaho’s average income is lower than the national average, making housing unaffordable for many residents. The median household income in Idaho was $72,785 in 2022, according to the latest data from the U.S. Census Bureau.

Wolkenhauer pointed out that the ratio of home prices to income in Idaho is about 7 to 1, while an affordable ratio would be closer to 3 to 1.

With housing prices so high compared to incomes, many households in Idaho simply can’t afford to buy a home, Wolkenhauer said.

High mortgage rates and prices are also keeping people from moving. A study by UC Berkeley and UC Irvine estimated that 660,000 Americans who would have moved between late 2022 and 2023 didn’t because of high mortgage rates.

Although the Federal Reserve may start to slightly lower interest rates, Wolkenhauer believes it’s unlikely that mortgage rates will drop enough to make a big difference. This situation is also affecting people’s ability to move for new jobs.

“Telework is fading, and people can’t afford to move due to the high interest rates,” he said.

There’s been some increase in housing inventory thanks to new construction. Idaho has seen more residential building permits in the last decade, but much of this is just catching up from the 2008 housing crash.

“This growth shows Idaho is trying to recover from a housing shortage,” Wolkenhauer said.

Construction activity in Idaho dropped sharply in the 2010s, just before the state’s population began to grow rapidly. The financial crisis also hit construction jobs hard, and they didn’t return to pre-2008 levels until 2021.

Homeowners with low mortgage rates are sitting on significant real estate wealth. Nationwide, Americans own about $45 trillion in real estate assets, with older people (age 70 and up) holding a third of that.

In 1990, people under 40 owned about a quarter of all real estate, but now they account for just 12% of homeownership, Wolkenhauer said. As older homeowners age, there could be more homes coming onto the market in the next decade.

Renters in Idaho and the U.S. are also facing high costs, although rents haven’t risen as fast as home prices since 2020. In counties like Ada, Bannock, and Kootenai, over half of renters spend more than 30% of their income on housing, making them “cost-burdened.”

There has been some relief in recent years with more multi-family housing projects coming online, though much of this is from a backlog of projects rather than new construction. However, new permits for multi-family units in Idaho have been declining recently.

Once these projects are finished, the increase in supply will slow down, Wolkenhauer said.

Despite the rapid rise in prices, Wolkenhauer pointed out that today’s market is different from the lead-up to the 2008 financial crisis. Back then, there was a lot of risky buying and borrowing, which isn’t the case now.

“Today, the high prices are due to a lack of supply, not excessive buying, he said.