When mortgage rates rise, house prices tend to flatten or fall because fewer people can afford to buy. Experts are counting on that saying to help cool the country’s wild housing market.
But the latest analysis of the most overvalued markets shows that prices are still rising despite rising mortgage rates, which last week reached their highest level in more than three years.
In all 100 markets surveyed by researchers at Florida Atlantic University and Florida International University, buyers are still paying higher premiums – this is the difference between where home prices should be based on historical trends and where they are now.
Two months ago, Los Angeles, Provo, Utah and other metro areas in the western part of the country developed “price crowns,” an indication that those housing markets could slow down. But house values have since accelerated again, raising concerns that a looming downturn in some areas could be worse than expected.
“Eventually, mortgage rates will slow down house prices, but that’s not happening yet,” said Ken H. Johnson, Ph.D., an economist at FAU’s College of Business. “We should not see rapid increases in prices as mortgage rates rise. It is that kind of exuberance that has led to previous housing downturns. ”
Boise, Idaho, is the country’s most overvalued housing market, as it has been since the researchers first released their rankings last summer.
At the end of February, Boise buyers paid an average price of $ 513,849, although historical trends indicate that the average price should be $ 291,389. That premium of 76.34 percent is far ahead of No. 2 Austin, Texas (64.80 percent). The complete ranking with interactive graphics can be found here.
Charlotte, North Carolina entered the top 10 overvalued markets for the first time with a premium of 50.14 percent. February’s average house price in Charlotte was $ 353,106, although a history of previous sales suggests the price should be $ 235,188.
“Charlotte’s significant and rapidly growing premium is similar to other southern metros, all of which are experiencing rapid price appreciation,” said Eli Beracha, Ph.D., of FIU’s Hollo School of Real Estate. “The drivers of this appear to be large population increases in these areas, combined with a significant shortage of housing stock.”
Every month, Johnson and Beracha rank the most overvalued housing markets in America’s 100 largest subways, similar to the popular S&P CoreLogic Case-Shiller housing price index. Johnson and Beracha incorporate average or expected price changes and give an estimate of how much a market’s home stock is overvalued or undervalued, relative to its historical prices. The data cover single-family homes, townhouses, flats and co-operatives.
Six Florida subways, led by Lakeland, all count among the country’s 25 most overvalued markets with premiums of more than 40 percent. The Miami metro, with a premium of nearly 25 percent, remains the least overvalued market in the Sunshine State.
As the U.S. housing market cools, metros with strong population growth and shortages of homes for sale will perform best, though those markets will continue to struggle with affordability, the researchers predict. Metros with flat or declining populations and more available homes for sale may face price declines, making those areas more viable for young families and first-time buyers.
Johnson said consumers could take big risks if they now enter the U.S. housing market.
“We’re nearing the peak of the current housing cycle, and you never want to buy near the top of the market,” he said. “Consumers must remain silent when their main motivation is to buy, because they fear that prices will rise even higher. Prices are high now, but moderately always back to a long-term price trend. Maybe it’s one of the best decisions you can make to stay where you are now and establish this irrational market. ”