A Housing Slowdown Forms in the West

Although home prices are rising all around him, one Florida Atlantic University professor suggests that home prices appear to be settling in Western US markets, signaling the start of the anticipated housing slowdown.

His perspective comes from this week’s release of the new study by researchers at Florida Atlantic University and Florida International University that showed home-price cooling out west while home prices continue to rise nearly unabated in the Eastern part of the country.

“These latest results suggest that the long-anticipated housing downturn is already beginning in the Western half of the U.S.,” Ken H. Johnson, an economist for FAU Executive Education within its College of Business, said in prepared remarks.

“This is not totally surprising because it is in the West where the greatest separation between actual housing prices and projected housing prices has occurred to this point.”

LA and Boise Form ‘Pricing Crown’

Los Angeles and Boise, Idaho, are among a growing number of Western metropolitan areas developing a “pricing crown”—a leveling off of home price gains that typically precedes a market slowdown, according to the report. Other markets forming pricing crowns include San Diego and San Francisco, as well as Ventura and Stockton, Calif.

Each month, the researchers rank the most overvalued of the nation’s top 100 housing markets, showing where prices are now compared to where they should be based on historical trends. 

The researchers use publicly available data from the online real estate portal Zillow or other providers. The data, which extends from January 1996 through November 2021, includes single-family homes, townhomes, condominiums and co-ops.

Homes Overvalued in 98 Key Markets

The November 2021 analysis reveals that homes are overvalued in 98 of the markets, with only Honolulu and Baltimore offering bargains to buyers. 

This stands in contrast to the Eastern part of the US, where home prices continue to rise. Markets such as Atlanta and Charlotte reveal a consistent upward trend in prices and growing premiums that buyers must pay. This also is occurring in such metro areas as: Columbus, Ohio; Fort Myers and Tampa; and Memphis and Nashville.

“Few cities in the Eastern half of the US are exhibiting a pricing crown,” said Eli Beracha, an economist with FIU’s Hollo School of Real Estate. “Why varying results are developing between housing markets in the West and East is unclear at this time. What is clear, however, is that this pattern is taking hold.”

Boise remains the nation’s most overvalued market, with buyers paying 78.36% more than they should in November 2021, based on the market’s historical pricing trend. But that’s down from 79.22% in October 2021.

Each of the other metros in the top 10, including Austin, Texas; Ogden, Utah; and Phoenix, experienced rising premiums, meaning price growth remains steady.

Florida markets also are becoming more overvalued, with Lakeland and Tampa the most exposed areas there. Lakeland homes are overvalued by 40.58%, up from 37.25% in October 2021, while Tampa is at 39.94% , compared with 37.37% in October 2021. In November 2020, both those markets were overvalued by less than 15%.