The Top 15 Most Overvalued Housing Markets In The US

The housing market in the Tri-County South Florida area has soared to become one of the most overvalued markets in the United States due to very high demand and a persistent supply shortage. According to researchers from FAU and FlU, buyers are now paying an almost 39% premium for the typical home in South Florida, making the area the 11th most overvalued market nationwide.

Florida as a whole is experiencing a similar trend, with nine of its metro areas ranked in the top 15 most overvalued markets in the country. Tampa leads the pack with buyers paying a staggering 42.56% premium for homes, followed by North Port, Cape Coral, Lakeland, Palm Bay, Jacksonville, Orlando, and Deltona.

In this blog we’re going to discuss the top 15 most overvalued markets in the US, how we got to this point, and what these same researchers say is going to happen to the market so make sure you read to the end. After reading this whole blog, I’d love it if you could leave a comment with your opinion on where the market is going and be specific as to why using data.

What does "overvalued" mean?

So first I want to explain how these researchers define “overvalued” and where they predict the market is going to go. These researchers used data from Zillow to find the average annual rate of appreciation going back to 1996. Any increase in prices above the historically average pace of appreciation they deem as “overvalued”. With the rapid increase in prices since 2020, its no wonder the market is considered overvalued, but both researchers of this study agree that the chances of a significant crash in prices is unlikely. They say that unfortunately this housing market cycle will become known for its prolonged period of unaffordability.

So lets get into it. As of the end of June, the median home price in South Florida reached $458,749. Real estate economist Ken Johnson of Florida Atlantic University suggests that the price surge may be linked to seasonal factors, but the steady premium scores, meaning the difference between actual and statistically predicted prices, imply a more significant underlying trend. If home prices had appreciated at the historically average pace over the last few years, the median home price would currently be $330,285. You can read about his study here.

The top 15 overvalued metros in the country as of June 2023

1 – Atlanta, ga – 47.34%

2 – Detroit, mi – 46.08%

3 – Tampa, fl – 42.56%

4 – North Port, fl – 41.93%

5 –Memphis, TN – 41.85%

6-Winston, NC – 41.77%

7-Cape Coral, FL – 41.66%

8-Charlotte, NC – 41.48%

9-Lakeland, FL – 40.26%

10-Palm Bay, FL – 39.89%

11-Miami (south East Fl) – 38.89%

12- Jacksonville, FL – 38.37%

13-Orlando, fl – 31.18%

14-Greensboro, NC – 38.06%

15- Deltona, FL – 38.00%

View the top 100 most overvalued metros here.

So how did we get here?

Well historically housing prices do appreciate, so its not a new phenomenon that homes are going up in value. But in March 2020 to fight the economic effects of the pandemic, the Federal Reserve slashed interest rates to zero to boost the economy. The unintended consequence was that homeowners refinanced their homes, locking into sub-3% rates.

Today, 45% of homes in America have no mortgage, and 62% have an interest rate below 4%. This is wildly different than before the 2008 crash when many people had adjustable rate mortgages with soaring payments and values declining. In that situation it made more sense for homeowners to stop paying their mortgage or walk away and give their home to the bank in foreclosure.

All the people who own their homes outright or with extremely affordable interest rates will likely be able to keep making payments through any potential economic downturn that may come in the future.

Many homeowners now feel "trapped" in their homes, not wanting to trade up to a more expensive home with a much higher interest rate. In order to afford many houses in South Florida now you need to be making $150,000 or more a year and many of the people relocating to the state are small business owners and entrepreneurs that meet this category. Unfortunately this makes it incredibly expensive for the average person to afford to live here.

On top of that, many large investment firms are buying up hundreds or thousands of homes at a time. They typically are buying what would be considered a starter home, making it even more unaffordable for people to get on the first ring of the homeownership ladder and build equity.

We also had many years of of building way fewer homes than we needed to keep up with population growth before the pandemic. With natural population growth and household formation, we need more homes in this country than ever before. Builders can’t keep up with the frenzied appetite of buyers these days, and in South Florida our problem becomes worse because we don’t have a lot of buildable land. With the Everglades to the West and the ocean to the East, there just isn’t enough land to build on, making land prices go up drastically to the point where it only makes sense to build luxury homes.

Again, despite the considerable growth in home prices, both researchers of this study agree that a significant housing market crash is unlikely, and this cycle will unfortunately be characterized by a prolonged period of unaffordable housing.

What do we do about this?

When interest rates come back down in a few years, you will start to see many sellers feel more comfortable listing their homes for sale which should help, but there are tons of buyers just waiting for rates to drop slightly to reenter the market so that’s not a real solution.

In my opinion, I'm not a huge advocate of the government telling people or companies what to do, but if there were different incentives for the investment firms it might discourage them from buying so many houses and give the average Joe a fighting chance. I’d personally like to see a reduction in the ability of corporations that own 50+ houses to depreciate the houses on their taxes. This is a major tax benefit of owning an investment property and it might change the calculus on their decision to keep buying or even continue owning the homes. I think if this happens we may see more corporations sell and give real families a chance to own a home.

What do you think? Leave a comment below!

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