This is the Most Overvalued Housing Market in the US

Detroit is now the most overpriced housing market in the United States, edging out Atlanta, which held the spot for more than a year. Homes in the Detroit metro area are 40.79% overvalued, while housing premiums in Atlanta are 40.37% overvalued, according to researchers at Florida Atlantic University and Florida International University.

Detroit’s rise as the most overvalued housing market in the country is likely due to new household formation, said Ken H. Johnson, a real estate economist in FAU’s College of Business.

“While population growth is relatively stagnant in the area, people are starting to leave their current households to form new ones, placing pressure on a housing market that simply does not have enough units to support this new demand,” said Johnson.

Home prices in the market are likely to continue to increase over the near-term in step with growing rents, the report predicted. However, Detroit differs from Sun Belt markets, including South Florida, where the housing market is driven more by demand from newcomers and population growth.

Nearly all of the 100 most populated cities are currently selling at a premium, the study found. Only Honolulu and New Orleans are trading at a discount. Some markets are beginning to return to long-term pricing trends, including Austin, Texas, which has been one of the most overpriced markets in the past couple of years. Homes there are 11.72% percent overvalued, compared to the market’s peak of 46.7% in June of 2022.

“Housing prices can and will re-stabilize. The only question is how local home prices will return to a given area’s long-term pricing trend,” said Eli Beracha, Ph.D., director of FIU’s Hollo School of Real Estate. “Will it be quickly with a precipitous fall in home prices extinguishing all worries of affordability? Or will prices flatten and slowly return to the area’s long-term trend sustaining equity values but creating considerable affordability problems?”

Ideally, a housing market’s prices remain close to long-term pricing trends with limited fluctuations, Beracha said. The past two housing cycles instead have been characterized by dramatic swings.

“As a result, we are continuously worried about either wealth loss from home price declines or prolonged periods of unaffordable housing,” said Beracha.

The Top 100 U.S. Housing Markets, a part of FAU’s Real Estate Initiative, calculates how overvalued or undervalued the typical home is in the country’s 100 most populated metros using publicly available data from Zillow.