Home Prices Are Peaking In A Growing Number Of US Markets

Home prices have peaked in a growing number of overpriced housing markets as sellers and buyers pull back in the face of rising interest rates and affordability challenges.

Researchers at Florida Atlantic University and Florida International University analyzed the 100 most overvalued housing markets by looking at their premiums, the percentage above the long-term pricing trend that buyers must pay on a property.  The larger the premium, the more overpriced the market.

In July, they found that premiums fell in 27 markets. Of those, 22 also saw home prices fall. Most of these markets are west of the Mississippi River.

This is a significant increase from June when premiums declined in 12 markets and prices fell in only seven.

FAU’s Ken H. Johnson says falling premiums are a sign of a home price peak.

“The consistent increase in the number of premium downturns in our monthly reporting strongly suggests that individual housing markets are at, or will soon be experiencing, their pricing peaks,” he said. 

“We are at the turning point. The likelihood of significant price increases in the near future grows smaller by the day.”

Austin, Denver, Minneapolis, Los Angeles, Phoenix, Salt Lake City, San Francisco, and Seattle were among the metros where both premiums and prices declined.

But prices are still up despite slowing appreciation. FIU’s Eli Beracha said home values shouldn’t fall sharply as they did in the last housing downturn. Both Johnson and Beracha believe the housing slowdown will vary across the country, rather than bring about price drops everywhere.

“Will prices decline quickly and noticeably or will we see the nation’s inventory issues support prices at the expense of a prolonged period of housing unaffordability?” Johnson said.

“This will all depend on population movements and how fast we build much-needed housing units.”

Beracha reiterated that low inventory will be key to what areas see prices plummet.

“That undersupply will keep pressure on prices in many areas,” he said.

Boise remains the most overvalued market in the U.S., with buyers paying 66.7% above the long-term pricing trend. Austin was the second but has been bumped out by Las Vegas and Fort Myers.

Many home sellers are dropping their asking prices, especially in pandemic boomtowns like Boise, as the market cools and buyers have gained ground to be picky. Almost 70% of Boise sellers cut their asking prices in July.

Blackstone-owned Home Partners of America, one of the nation’s largest private landlords, is halting single-family home purchases in 38 markets by the end of September, some of which are considered overvalued. The firm made its decision based on factors like price appreciation and market demand.

Long-term pricing trends go back to 1996 and include single-family homes, townhomes, condos, and co-ops.