Housing prices have been starting to stabilize across the country. But even though homebuyers are waiting for a break in the market, they may not find it anytime soon according to researchers at Florida Atlantic University and Florida International University.
Price increases lessened month-to-month in areas like Seattle where prices only increased about .2%, Charlotte, North Carolina, .3%, and only .4% in Portland, Oregon. And Jacksonville and Phoenix saw slight price declines of .03%.
Despite the beginning stages of moderation in housing prices, markets throughout the country remain significantly overvalued compared to their long-term pricing trends. And this is a sign that it could be years before prices return to where they should be, and buyers are no longer paying a premium for a home.
Atlanta remains the country’s most overvalued market, with buyers paying an almost 48 percent premium. And the next highest is Detroit where homes are 45.88% overvalued; Tampa, 43.09%; Memphis, Tennessee, 42.65%; North Port, 42.59%; Cape Coral, 42.18%; and Charlotte, North Carolina, 41.63%. In Miami, an area that shows little signs of a decline, homes are 38.73% overvalued.
The full ranking can be found at the Beracha and Johnson Housing Market Ranking. Every month, FAU and FIU rank the 100 most overvalued metro areas using publicly available data from online real estate portal Zillow or other providers. And the data – which extends from January 1996 through the end of May – includes single-family homes, townhomes, condominiums, and co-ops.
The ranking is part of FAU’s Real Estate Initiative, which is a collaboration of professors at FAU, FIU, Florida Golf Coast University, and the University of Alabama to help the average consumer make informed decisions about housing. The initiative releases three monthly indices looking at rent prices, housing prices, and whether market conditions favor buying or renting.
Some markets such as those on the East Coast and in Sun Belt states remain overvalued because of their price-to-rent ratios. A higher return on rent indicates that prices will likely stay stable, while a lower return on rent suggests the opposite. For example, Miami provides homeowners a 7.45% return on gross monthly rent, while El Paso, Texas offers an 8.9% return and New Orleans an 8.33% return. And the higher returns indicate that the prices in these markets will stay well supported.
KEY QUOTES:
“Prices are still moderating in the majority of the country, especially east of the Mississippi. There’s not much price movement. But, once you go west, you see some price declines.”
“Higher returns from rent in the eastern half of the US help explain recent price performance differences between the western and eastern halves of the country. These high gross returns can be calculated from a metro’s price-to-rent ratio by simply inverting the ratio. In general, prices are probably going to be well supported in most of the Sun Belt states.”
— Ken H. Johnson, Ph.D., real estate economist at FAU’s College of Business
“There’s some concern in buying if you are looking to resell in a short time. But, if you are planning on staying in the home for several years, purchasing should perform as well in terms of wealth creation as renting and re-investing. For example, in Miami, there’s no reason to suspect a crash in prices as witnessed 15 years ago when the average property lost upwards of 60 percent in its value. Supply and demand are completely different this time around.”
— Eli Beracha, Ph.D. of FIU’s Hollo School of Real Estate
