Southern Metros Remain Overvalued, Researchers SayBy Jesse Williams
For a while, it was obvious that home prices were rising faster than they should. So-called “zoom towns” cropped up as remote workers poured into exurbs around mid-size metros, seeking space and other amenities. Towns like Boise, Idaho, suddenly became hot spots for the tech industry, and Sun Belt cities like Phoenix, Arizona, and Austin, Texas, blew up, with home prices spiraling to ridiculous heights.
Thankfully, the ride back down has not been nearly as wild as the ride up, at least for most markets. Prices have moved back toward fundamental expectations across much of the country, as mortgage rates temper demand and new inventory begins to balance supply. But there are still areas where prices are not following this trend. Since early in the pandemic, researchers at Florida Atlantic University (FAU), Florida Gulf Coast University (FGCU), Florida International University (FIU) and the University of Alabama have tracked what metros are skewing furthest from long-term trends, attempting to assess where homes are most “overvalued.” Their latest report shows that a few areas are still defying the downturn. “It’s clear that higher mortgage rates over the past year have helped moderate housing prices in many areas of the country,” said Ken H. Johnson, an economist in FAU’s College of Business. “But consumers…still need to be wary of the current climate.” Almost exactly a year ago, there were 13 metro areas where homes were at least 50% overvalued. Now, there are none. A vast majority of markets that are still holding above long-term pricing trends are located in one region—the South. Among those, Florida dominates the list, with nine cities out of the top 15 most overvalued. Johnson specifically advised homebuyers in those regions to be careful if they weren’t in it for the long haul. “Those who buy now could end up having to hold onto the properties for years before values rebound enough for owners to fetch an acceptable profit in a resale,” he said. It remains unclear whether these markets that are still seeing prices above long-term trends are overvalued (and will eventually see price drops), or whether they gained real, long-lasting value in a short period of time. Atlanta, Georgia, for instance, is still 49.7% overvalued by the researchers’ methodology. It was also selected by National Association of REALTORS®’ Chief Economist Dr. Lawrence Yun as a top “market to watch in 2023 and into the future,” with prices predicted to rise at least 5% this year. That analysis was based on more fundamental housing and economic strengths, such as relative home affordability, in-migration and high-paying jobs, according to Yun. Many markets that were identified as overvalued by Johnson and his fellow researchers have already seen precipitous price drops. Boise, for instance, was almost 80% overvalued last year, and has seen prices fall 14.6% since last year, according to a Redfin analysis (now less than 30% overvalued). Austin, similarly, is now only 26.6% overvalued, with prices down 16.4% after topping the overvalued rankings last summer. What happens next is, like most things in real estate, going to be based on local conditions. Economists have emphasized that a variety of interrelated factors dictate how a given region or metro will respond to the pressures of a downturn or correction. Eli Beracha, a researcher on the project working at FIU’s Hollo School of Real Estate, said the “overvalued” analysis can be part of that calculus. “We’re trying to provide meaningful, real-time research to help consumers make more informed real estate decisions,” he said. The full list of overvalued markets can be found here. |
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