BOISE, Idaho—For Jon and Katie Herstein, living in this scenic city was a shared dream.
Jon, 53, and Katie, 51, hoped to someday live among the rolling mountains and lush parks that have long beckoned nature lovers and outdoor-sports enthusiasts. The Hersteins had been talking about a move since 2018 when the couple, inspired by a home-renovation show, began to research the area.
In Idaho’s idyllic Treasure Valley, their children, ages 12 and 14, could ride their bikes to school. For the family, living in southwestern Idaho would mean watching salamanders dart across the shores of the Boise River, biking the city’s tree-covered Greenbelt, and hiking through the abutting foothills with the family’s dog, Princess.
This year, they made the move, even as Jon kept his job at a Silicon Valley tech company. For the Hersteins and other professionals who showed they can succeed at remote work, the pandemic ignited a newfound flexibility that drove many to leave their daily commutes and relocate to farther-flung locales. “They can live and work anywhere, and that’s what they’re doing,” says Mark Zandi, chief economist at Moody’s Analytics.
These new homesteaders are relocating to growing midtier cities across the country, contributing to a perfect storm of high demand and low supply that was already under way before the pandemic. The result is a surge in prices, delaying home purchases and sending rents higher. The median home in Boise sold for $469,100 in the second quarter, a 41% jump from a year earlier. Economists expect home purchases to remain strong and supply to increase with new construction. Still, the affordability issue isn’t about to go away.
The price spikes are spooking some established residents who are priced out of the market in places like Boise. “I have always worked really hard on my career, and my partner and I make a good amount of money, but we can’t keep up with what is happening,” says Boise resident Graham McBride, who looked unsuccessfully to buy his first home late last year.
For families like the Hersteins, the new flexibility is the best of both worlds: They work for employers hundreds or even thousands of miles away and find housing that is comparatively affordable in desirable locales. Jon appreciates that Idaho has four seasons. The city of about 235,000 is much smaller than San Francisco “in an appealing way.” Boise has a growing tech scene, which Jon saw as an opportunity to give back through mentorship.
While Katie worked from home before the pandemic, Jon’s job as chief customer officer at cloud tech company Box kept him tethered to Silicon Valley. “I did not work remotely, so it didn’t really feel like it was a true option while I was working full time,” he says. That changed when offices closed to stem the spread of Covid-19.
The Hersteins temporarily relocated to Florida to care for relatives, selling the Bay Area home they bought in 2008 from thousands of miles away. The couple told a Boise real estate agent that they were ready to look in earnest, but house-hunting from Florida proved challenging. “By the time you see it on Zillow, it’s probably gone,” Jon says the couple’s agent told them.
Finally, their agent called with good news this spring. An agent she knew was about to list a house that would be perfect for them. The Hersteins reviewed photos and videos of the 3,000-square-foot house in southeastern Boise and decided to pounce. “I think we made an offer before it was officially on the market,” Jon says. They bought the house for $875,000.
With millennials entering prime home-buying age and baby boomers downsizing, the U.S. housing market was heating up well before Covid-19. A pandemic-induced zest for homes, historically low mortgage rates, and flexibility to work from anywhere further fanned the flames. A shortage of available housing, which Freddie Mac estimates increased to 3.8 million in 2020 from 2.5 million in 2018, contributed to the squeeze.
The median existing-home sale price in July was $359,900, a nearly 18% increase from last year, while 89% of homes were on the market for less than a month, according to the National Association of Realtors. Freddie Mac’s latest quarterly forecast sees annual home-price growth in 2021 topping that of 2020. In 2022, the forecasters say, home prices will continue to increase, though at a slower pace.
Prices in some places popped more than others. Median home prices on the sunny Gulf shores of Florida, in the hazy foothills of Idaho’s Treasure Valley, and along the winding, wooded roads of Massachusetts’ Berkshire County all rose more than 35% year over year in the second quarter of 2021, according to the Realtors association. These disparate landscapes share a notable trait: a higher-than-average share of out-of-state views of their local real estate listings.
Zandi, the Moody’s Analytics economist, says credit data collected by his firm show that the pandemic accelerated migration to more-affordable areas from expensive city centers. And for many, working remotely works just fine. More than half of all recent home buyers surveyed by Realtor.com this spring said they preferred remote work. (Realtor.com is operated by Move Inc., which, like Barron’s, is owned by News Corp. )
Just under half of respondents said their employers would allow them to work remotely once the pandemic subsides.
The same survey found that 16% of respondents were more willing to have a longer commute now. Younger home buyers were even happier to choose the option, with 22% of millennial respondents saying they would extend their commutes if necessary.
Such flexibility has prompted home buyers to look beyond their own metro areas. New Yorkers, Realtor association data show, are shopping for homes in Connecticut’s Fairfield County, while Los Angeles residents’ house hunts have drifted inland to places like Riverside and San Bernardino.
Other house hunters expanded their search, with West Coasters scouting markets like Boise and Las Vegas; New Yorkers examining places like Miami and Tampa; and Washington, D.C., residents considering Baltimore and Philadelphia.
“If there is one lesson we have learned, it’s that remote work is a viable option for many workers and many companies,” says Lydia Boussour, lead U.S. economist at Oxford Economics. “More and more, there is this idea that remote work is going to stick.”
The key question is how much companies will be willing to accommodate these new preferences, says Boussour. For every company like Twitter that says employees can work remotely indefinitely, there are plenty of companies that want employees back in the office. But with a historically tight labor market, employees may have more of an upper hand in negotiations over benefits like remote work.
The new migration promises fresh vibrancy to small housing markets without strong economic centers, says Susan Wachter, professor of real estate at the Wharton School at the University of Pennsylvania. “Ghost towns of the past now have a future again,” she says.
In Boise and other hot markets, out-of-state interest probably contributed to intensified competition for homes. In July 2021, the latest month for which data are available, 60% of offers made by Redfin agents around the country faced competition. The average home sold 2.3% above listing price in July, continuing a five-month trend, according to Redfin data.
Regional pay disparities also play a role. High-earning remote workers moving to lower-priced regions “have been willing to pay high prices because they’re so used to the higher prices where they came from,” Zandi says. Remote workers “want the lifestyle, they want the affordability, and they want to keep their jobs,” notes Wachter. “The outcome is that what was affordable is fast becoming unaffordable.”
In Boise, the median home price of $469,100 in the second quarter doesn’t look so bad compared with single-family homes in large West Coast cities like San Francisco, Seattle, and Portland, Ore. And where population flows, investors follow. Almost 25% of Boise home sales in 2020 were purchases by investors, according to CoreLogic.
Growing up in Boise, McBride says he dreams of someday buying a Victorian cottage with room for a beautiful garden. With home prices on a tear, the 30-year-old program manager at outsourcing company PartnerHero and amateur botanist says he and his partner don’t currently see a path to homeownership in Boise.
McBride says that friends made offers on houses without seeing them in person, but he felt that was rushed. “House after house would be on the market for eight hours and already have eight offers. It was just heartbreak after heartbreak,” he says.
More than half of prospective home buyers surveyed in July by mortgage technology company Mphasis Digital Risk said that current buying conditions make them feel sad or anxious. Perceptions of conditions for buying a home as measured by the University of Michigan also fell, dropping to the lowest level in nearly 40 years.
The Realtors association estimates that 4.8 million fewer prospective buyers can afford a home now than in 2019. And that’s with mortgage rates, a key ingredient in the affordability calculation, near historic lows. The average rate on a 30-year fixed rate mortgage is expected to rise to 3.7% by the end of 2022, according to the Realtors association. That would still be low by historical standards, but significantly higher than the all-time low of 2.65% in January.
Builders, of course, are happy to construct new homes, but they face headwinds. “Supply is constrained, demand is off the charts, and it has been a stressful period of time for everybody to keep up,” says David Turnbull, principal at southwestern Idaho builder Brighton Corp.
High commodity prices and shortages of labor and materials continue to pose challenges in Boise and around the country. “Yesterday might have been lumber; today it’s garage doors,” Turnbull says. “Every week you come in and say, ‘What’s it going to be this week?’”
New-home sales in recent months have fallen as builders work through their backlogs of orders. The National Association of Home Builders’ gauge of builder sentiment last month fell to its lowest level since July 2020. “Higher costs and material access issues have resulted in lower levels of home building and even put a hold on some new-home sales,” says Robert Dietz, the trade group’s chief economist.
Constraints are expected to lessen as supply-chain issues are resolved. “Our expectation is that production bottlenecks should ease over the coming months and the market should return to more-normal conditions,” Dietz says. Some normality has already returned: Lumber prices, which soared earlier this year, have given up all of their gains. The home builders association expects new-home sales in 2021 to total 809,000, 2.3% lower than 2020 but 18.4% higher than 2019. Sales are expected to increase in 2022 and 2023, rising to levels 21% and 22% above 2019, respectively.
Competition among buyers has already shown some signs of slowing as more new homes hit the market, although more supply will be needed to meet demand, especially at lower price points. “Much of the home sales growth is still occurring in the upper-end markets, while the mid- to lower-tier areas aren’t seeing as much growth because there are still too few starter homes available,” notes the Realtors’ chief economist Lawrence Yun last month.
Builders and other companies in the housing industry see low home supply as a multiyear tailwind for their businesses. “We remain bullish on the long-term prospects for the housing market, which is supported by many factors, including a significant imbalance between the supply and demand of homes,” says Toll Brothers CEO Douglas Yearley on an August earnings call. “On the supply side, this imbalance is the result of a decade of underproduction of new homes.”
White House officials are poised to confront the shortage, recently releasing their plan to encourage construction or preservation of more than two million housing units, 100,000 of which will become available in the next three years.
Boise officials are exploring their own solutions. Soaring home prices have pushed up the city’s cost of living. The cost to buy a house isn’t in line with local wages, says Boise Mayor Lauren McLean. Among the solutions she’s considering: assessing city-owned land for potential use as housing, partnering with developers to create multi-income neighborhoods, and using incentives to encourage higher-density construction. “We want to do everything we can as a city to ensure that there’s a home that’s accessible to everyone.”
For now, some would-be buyers feel stuck. McBride says he’s willing to wait a decade for affordability to improve in Boise before he faces moving elsewhere.
California, Portland, and Seattle are too expensive, he says. Some locations in New Mexico or Colorado could meet his requirements for outdoor space and favorable climate—but McBride hopes it doesn’t come to that. “I don’t want to leave, because I love this place,” he says.
Write to Shaina Mishkin at firstname.lastname@example.org