Study: Detroit Overtakes Atlanta as Most Overvalued Housing Market
After more than a year of Atlanta dominating the list of most overvalued housing markets, Detroit is now the most overpriced market in the United States, according to researchers at 抖M女仆 and Florida International University.
After more than a year of Atlanta dominating the list of most overvalued housing markets, Detroit is now the most overpriced market in the United States, according to researchers at 抖M女仆 and .
Homes in the Detroit metropolitan area are 40.79% overvalued compared to their long-term pricing trends, according to end of May data from . Meanwhile, housing premiums in Atlanta are 40.37% overvalued, bringing Atlanta in as the second most overvalued housing market in the country.
鈥淒etroit鈥檚 rise as the most overvalued housing market in the country is likely due to new household formation,鈥 said , Ph.D., real estate economist in 抖M女仆鈥檚 . 鈥淲hile population growth is relatively stagnant in the area, people are starting to leave their current households to form new ones, placing pressure on a housing market that simply does not have enough units to support this new demand.鈥
The Top 100 U.S. Housing Markets, a part of 抖M女仆鈥檚 , calculates how overvalued or undervalued the typical home is in the country鈥檚 100 most populated metros using publicly available data from Zillow. Johnson and fellow researcher , Ph.D., director of FIU鈥檚 Hollo School of Real Estate, examine the difference in actual average selling price in a city and the city鈥檚 statistically modeled average selling price to calculate a premium or a discount.
Currently, 98 cities in the study are selling at a premium, while only two, Honolulu and New Orleans, are transacting at a discount.
鈥淩ents are still growing in Detroit, signaling that home prices are likely to continue to grow for the near future. Detroit, however, does not have the same factors of supply and demand as South Florida and other parts of the Sun Belt where the housing market is bolstered by rampant demand from newcomers and population growth to sustain their housing prices,鈥 Johnson said. 鈥淓ventually, prices will return to their long-term trends, but how they get there is the open question 鈥 will prices crash as they did after the last housing cycle鈥檚 peak or will home prices flatten out and slowly work their way back to the area鈥檚 trend. It will be one of the two.鈥
Some housing markets in the country that were once some of the most overpriced markets as measured by the Top 100 U.S. Housing Markets have already begun making their way back to their long-term pricing trends. One such market, Austin, has already started to re-stabilize: homes in the metropolitan area are presently 11.72% percent overvalued, compared to the markets peak of 46.70% in June of 2022.
鈥淗ousing prices can and will re-stabilize. The only question is how local home prices will return to a given area鈥檚 long-term pricing trend,鈥 Beracha said. 鈥淲ill it be quickly with a precipitous fall in home prices extinguishing all worries of affordability? Or will prices flatten and slowly return to the area鈥檚 long-term trend sustaining equity values but creating considerable affordability problems?鈥
Both researchers stress the goal of The Top 100 U.S. Housing Markets is to give insight into housing markets around the country and help buyers, sellers, real estate professionals, and policy makers make more informed real estate decisions.
鈥淚deally you want a housing market鈥檚 prices to remain close to its long-term pricing trend with only limited fluctuation around the trend. Unfortunately, the last two housing cycles have been typified by dramatic swings in prices above and below markets鈥 long-term pricing trend,鈥 Beracha said. 鈥淎s a result, we are continuously worried about either wealth loss from home price declines or prolonged periods of unaffordable housing.鈥
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