Overvalued Home Markets Reach Inflection Point

A “crown” has been reached in Boise, Idaho; Austin, Texas; Ogden and Provo, Utah; and Phoenix, making them the five most overvalued markets, according to a report by Florida Atlantic University and Florida International University.

Home prices continue to rise across the country and are poised to flatten in some metropolitan areas. When a pricing “crown” is developing, it can be an indication that home values in those areas may be leveling off.

“A crowning in prices is common when markets reach the peak of their current housing cycles,” Ken H. Johnson, an economist at FAU, said in prepared remarks. “It does appear that several areas around the country are at an inflection point.”

Earlier this year, Johnson and Eli Beracha, with FIU’s Hollo School of Real Estate launched the rankings to help consumers, lenders and real estate professionals make more informed home buying decisions.

Comparing Today’s Price to a 25-Year Trendline

The researchers use publicly available data from the online real estate portal Zillow or other providers. The data, which extends from January 1996 through the end of October, includes single-family homes, townhomes, condominiums and co-ops.

In Boise, for example, homes are priced 80.51% above the Boise market’s long-term pricing trend. Buyers in No. 2 Austin are paying a 57.13% premium. Honolulu, Hawaii, remains the most undervalued market, with homes selling for 1.63% less than they should.

“The danger in buying into an overvalued market is that you may have to own the home longer to realize significant financial returns,” Beracha said in prepared remarks. “Once prices level off, reselling the property for a higher return is very difficult.”

The latest rankings show that prices in some metro areas, such as No. 10 Atlanta and No. 18 Dallas, are rising rapidly, producing market premiums much greater than the last housing run-up about 15 years ago.

In other areas, such as No. 64 Miami and No. 90 Los Angeles, prices are increasing, but at much slower rates relative to the markets’ long-term pricing trend, producing market premiums noticeably smaller than at the peak of the last housing cycle in 2007.

Some Think Market Prices ‘Go to the Sky’

“This all suggests that some areas of the country learned a valuable lesson about prices, while others hold to the stubborn belief that housing prices grow to the sky,” Johnson said.

Among Florida markets, No. 15 Tampa and No. 16 Lakeland are the most exposed areas for a housing downturn, based on past pricing in their markets. Buyers are overpaying by 37.96 percent in Tampa and 37.86 percent in Lakeland.

Miami, which also includes Broward and Palm Beach counties, is the least overvalued market in the Sunshine State with homes priced 18.20% above the long-term pricing trend in housing for Miami.