Housing Premiums Drop in 12 Key Markets

There may finally have been a break in the housing market, according to research out of Florida Atlantic University and Florida International University.

“Each month since last summer, researchers … have ranked the most overvalued housing markets by analyzing their premiums—the percentage above the long-term pricing trends that buyers must pay in order to buy a property,” a press release said. As might be expected, higher premiums have meant markets being more overpriced.

But there was finally a break last month in 12 markets as premiums took a drop: Los Angeles; San Francisco; Seattle; San Diego; Denver; Pittsburgh; Portland, Oregon; Austin, Texas; Ventura and Stockton, California; Boise, Idaho; and Ogden, Utah. 

Up until now, only Boise and Pittsburg experienced falling premiums. The addition of ten more markets, according to the researchers, might be a sign that price moderation is spreading across the country and that falling property values could be a result.

“Premium declines are an early warning sign that prices are leveling off and likely on the way back down,” Ken H. Johnson, an economist in Florida Atlantic University’s College of Business, said in prepared remarks. “We will look back at this point as the starting gun for the down slope in our next housing cycle.”

In seven markets, property prices fell between May and June. They include San Jose, California (a drop of $13,091), Austin ($3,010), Seattle ($1,922); San Francisco ($1,568); Ogden, Utah ($879); San Diego ($541), and Stockton ($128), as the report noted.

Eli Beracha, of Florida International University’s Hollo School of Real Estate, thinks it’s still too early to declare a definite changed trend. While 12 premium declines and seven average price declines are substantial numbers and very suggestive of a slowdown, I’d like to see data from another month or two before calling the peak,” he said. “We have a substantial inventory shortage around the country, and this may help to buoy prices for a while longer.”

The top 20 of the most overpriced markets range from the 50.57% premium of Daytona Beach, Florida up to the nearly astronomical 69.20% in Boise City, Idaho. The premiums remain in double-digit percentages from number 21, Memphis, Tennessee (48.74%), down to number 95, the 10.39% of New Orleans. The lowest five, which include New York City and Washington, D.C., run from 3.43% to 5.25%.