Report: Metro U.S. homes are overvalued
Home prices across the nation are overvalued, in many cases by more than 10%, according to Fitch Ratings.
U.S. home prices are overvalued by more than 10% in some areas, according to a recent report from Fitch Ratings. In 4Q23 homes in the U.S. were overvalued by 11.1% on a population-weighted average basis – though prices may moderate later in the year.
Overvaluation was found in 90% of U.S. metropolitan statistical areas — a slight dip from the 91% affected in 3Q2023. Among these, 56% were overvalued by more than 10%, slightly fewer than the 58% in the previous quarter.
The most overvalued metro in the nation among the 50 with the highest populations was Memphis, including the Tennessee-Mississippi-Arkansas statistical area. The region is considered the commercial and cultural hub of the Mid-South and covers eleven counties in the three states.
Also in the top three overvalued MSAs were Buffalo-Cheektowaga-Niagara Falls, NY and Indianapolis-Carmel-Anderson, IN.
Fitch noted that the consistency of its estimates across time periods was backed by concurrent increases in the Home Price Index (HPI) and Sustainable Home Price (SHP) Index. The CoreLogic Case-Shiller HPI showed a 5.5% annual rise in nationwide home prices as of February 2024 – up 0.7% from the previous month.
“The increase in SHPs for 4Q23 was primarily driven by a rise in rents, as elevated rent levels indicate robust housing demand, which provides upward support on home valuations,” Fitch noted. “A quarter-over-quarter increase of 1.11% was observed in 4Q23 compared to 3Q23, according to the Zillow Observed Rental Index (ZORI).”
Separately, the ratings agency noted that the SHP was moderated by factors like unemployment rates, mortgage rates, real income, and household growth which remained relatively stable. Fitch also commented that the uptick in both active and new property listings pointed to early signs of a correction in the U.S. housing market. “Challenges such as high mortgage rates and home prices aggravate the affordability issue and continue to moderate the pace of this normalization.”
The agency said it expects nominal national home prices to decelerate to 0.3% to 3% in 2024, compared to 5.5% in 2023.