Which U.S. cities have the most overvalued housing markets?

Buying a home (or selling it for that matter) is one of the biggest financial decisions a person can make. You need to know how to navigate the complex and dynamic housing markets in the United States. And also know about the top overvalued housing markets so that you can make an informed decision when choosing your new home.

The post-pandemic real estate market has resulted in a new pattern of home price appreciation. The once-popular housing markets in West California are now being replaced by the hot housing markets on the East Coast.

According to analysts, the housing market, which was booming earlier, will now slow down due to increasing mortgage rates that will decrease housing demand and property prices in the next year. 

While this may happen in the future, home prices are not dropping as rapidly as the rise in mortgage rates, which may disappoint some potential homebuyers. However, the valuations vary from one region to another.

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Are home prices rising in US cities?

In the US, mortgage rates saw an increase of nearly 0.75% compared to the beginning of 2021. House prices rose by 18.8% annually by the end of the same year. These statistics point to the growing challenge of finding affordable housing in the country. Moreover, some regions present greater difficulties than others in terms of finding a reasonably priced good home. For example, Boise, Idaho, has one of the most overvalued homes. 

Homebuyers in Boise are paying a significant premium of 73%, primarily due to the recent surge in remote working. Researchers have determined that based on historical price data, the average cost of a home in Boise should be $299,205. However, the average homebuyer is paying over $516,550, which is approximately $217,345 more than the expected listing cost. Other cities which have made significant leaps include Las Vegas, Nevada, Atlanta, and Georgia.

What’s the current market situation?

When you think of overvalued housing markets, the places that come to mind are San Francisco Bay Area and New York City. However, a report from the credit rating agency Fitch Ratings has come out with a surprising list of the top overvalued housing markets in the nation. 

This is vastly different from last year’s ratings where the agency named Boise as the most overvalued metro area in the United States.

While Boise’s home prices remain overvalued, there have been other entries that have replaced it as the most overvalued housing market.

The trend of overvaluation is shifting to the East Coast from the West Coast.

Which are the top most overvalued housing markets? 

Fitch Ratings utilizes various valuation criteria, including trends in home prices, local earnings, employment rates, and household development, to assess different metropolitan areas in the United States. Based on its analysis, the following are the top five most overpriced metro cities.

Buffalo, New York

The housing market in the Rust Belt metropolitan area is overpriced by 27.1 percent. The region is experiencing a negative trend of population decline. New York was the country’s fastest-shrinking state in the previous year, having lost more than 520,000 inhabitants since April 2020, according to the Census Bureau. Despite this, the Buffalo housing market remains robust, as home values increased by 15 percent between the third quarter of 2021 and the third quarter of 2022, as reported by the Federal Housing Finance Agency (FHFA).

Fayetteville, Arkansas

According to the FHFA’s report, the homes in this metro area currently value at 27% higher than their actual worth. Additionally, there has been a 23% increase in home prices over the past year in the same area. However, despite these figures, the median sale price is slightly below $400,000, similar to the national average.

Rochester, New York

The housing market in this metropolitan area has inflated by 26 percent. Rochester experiences comparable market dynamics as Buffalo, except that its property values are lower and its earnings are slightly higher.

Ogden, Utah

There has been a significant increase in population as people moved away from more expensive housing markets to settle in places such as Ogden. According to the FHFA, real estate values dropped by 0.6% from the second to the third quarter. However, despite this decline, Fitch reports that homes in the area still overvalue by 25.5%.

Winston-Salem, North Carolina

According to the FHFA, the value of homes in this area increased by 20 percent in the year ending in Q3 of 2022. Fitch’s analysis suggests that home values are overvalued by 22.6 percent. However, local residents face difficulty due to the median family income of $77,400 being lower than the national median of $90,000.

What is the future of home prices?

Due to the increase in mortgage rates and sale prices soaring about 20% from the previous year, a large number of Americans are finding it difficult to afford the housing market. The good news is that experts anticipate a slowdown in the rapid price growth of the past two years. More buyers are choosing to hold back and wait for the market to stabilize. The housing bubble may burst eventually!

Written by Ramona Sinha. March 29, 2023

Ramona is a content writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. An avid traveler, she’s a digital nomad at heart and an animal lover from the depths of her soul.