U.S. Housing Markets Still Searching for Peak Prices
Higher mortgage rates have yet to cool overheated housing markets across the country as prices continue a steady climb in each of the nation鈥檚 100 largest metropolitan areas, according to researchers at 抖M女仆 and Florida International University.
Each month, 抖M女仆鈥檚聽, Ph.D., and FIU鈥檚聽, Ph.D., rank the most overvalued housing markets of America鈥檚 100 largest metros, similar to the popular聽. Johnson and Beracha incorporate average or expected price changes and provide an estimate of how much a market鈥檚 housing stock is over- or undervalued, relative to its historic pricing.
As of January, price premiums are up from December 2021 in all 100 markets, including Boise, Idaho, the nation鈥檚 most overvalued market. Boise buyers paid a premium of 76.39 percent last month, while buyers in No. 2 Austin, Texas, paid a premium of 62.33 percent. Meanwhile, Las Vegas and Atlanta are rising in the top 10, with both markets more than 50 percent overvalued.
Two months ago, 鈥減ricing crowns鈥 were developing in Los Angeles, San Francisco and other Western U.S. metros, an indication that the long-anticipated housing slowdown was starting. Today, however, prices have reaccelerated in all but a few of those Western metros.聽
In none of the 100 markets are homes considered undervalued, based on historical pricing. The data, which extends from January 1996 through the end of January 2022, includes single-family homes, townhomes, condominiums and co-ops.
The full rankings with interactive graphs can be viewed .
Ideally, housing values fluctuate moderately around a long-term, upward-sloping pricing trend, according to Johnson. Moderate fluctuations around this trend have made homeownership a wealth-generating engine for millions of middle-class Americans.
鈥淲ith modest fluctuations, people could buy, regardless of the point in a housing cycle and know that within a few years their ownership would create noticeable wealth,鈥 said Johnson, an economist with 抖M女仆 in the . 鈥淏ut with the dramatic fluctuations that we鈥檙e seeing now, wealth creation through housing is not guaranteed, making homeownership a sometimes-risky investment.鈥
To illustrate the point, Johnson compared current home prices in metropolitan Miami to those at the peak of the housing bubble in the mid-2000s.
In November 2006, Miami homebuyers paid on average $339,762, but it would not have been until May 2021 that they could have sold for a higher price ($343,879). And even then, after 15 years, the price gain would have been less than $5,000.
鈥淯sing our data, buyers can make similar comparisons in the other 99 housing markets,鈥 Johnson said. 鈥淚t鈥檚 clear that purchasing at the peak of a housing cycle is devastating to wealth creation.鈥
Johnson and Beracha say the next few months are crucial for housing markets across the country.
鈥淲e encourage buyers to negotiate aggressively or to consider renting, even in light of the recent surge in rental rates,鈥 said Beracha, of FIU鈥檚 . 鈥淚f you lock in a home price now, it could take years to see the return on that investment.聽Temporarily high monthly rent could be viewed as the cost of avoiding the vagrancies of an irrationally exuberant housing market.鈥
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