In this piece, we will take a look at the 20 most overpriced housing markets in the U.S. For more markets, head on over to 5 Most Overpriced Housing Markets in the U.S.
The housing market has undergone significant turmoil over the past couple of years. The market was shaken up due to the coronavirus pandemic which led to a sudden increase in prices that caught many off guard.
However, despite the recent disruption, over the long term, home buying has been moving upwards. Data from the National Realtors Group shows that home ownership rates in America have consistently grown since 2015. Back then, home ownership rate stood at 63.1% and it steadily grew until 2019 when it stood at 64.2%. However, between 2019 and 2020, the rate jumped higher than it had in all the previous years and ended up sitting at 65.4% as of 2020 end. The latest rate is for 2021 when the ownership stood at 65.5%. Yet, the data takes a widely divergent turn when we analyze it by race, as it shows that while the rate for White Americans owning a home stood at 72.7%, for Black Americans it drops to 44%. Asians, on the other hand, have a higher rate which sits at 62.8%. In fact, for Black Americans, the home ownership rate has nearly remained static since 2011, since it was recorded at 43.6% a little over a decade ago.
Delving into the details state-wise, home ownership rate was the highest for White Americans in Delaware, Mississippi, and South Carolina. On the other hand, states and regions with the highest cost of living, namely Hawaii, Washington D.C., and California, had the lowest rates. For Black Americans, the highest rates were in the same states, however, the lowest rates were in North and South Dakota. Interestingly, though, and in a development that is common across all races, after married couples, single women are buying homes in far larger amounts than single men.
Further building on this, data from the Federal Reserve shows that the average price of a home in America was $516,500 as of the first quarter of 2023 while the median price was much lower and stood at $375,500. Comparing this data from values for December 2022, the average price was $535,800 while the median price was $366,900 – indicating that the incoming economic slowdown and rising interest rates have already started to make their mark on the industry.
Research from Harvard University’s Joint Center for Housing Studies shows that most of the homes sold in America in 2022 were single family homes. Its hundred-page report shares the heavy impact of interest rate hikes on the housing market. According to the details, a 7% down payment on a typical home would require the buyer to fork out $27,500. The report adds that this large sump prices out 92% of renters from the chance to buy a home since their median savings stand at $1,500. Additionally, the rising interest rates have also (naturally) impacted the mortgage payments that home buyers will have to make. At a 3.5% down payment, Harvard estimates that the monthly payments sit at $2,020 – and at the same time, the minimum income needed to afford these payments sits at a stunning $107,600. Compare this with the median income in the U.S. of $69,717 in 2021 and you’ll understand some of the current market dynamics
Apart from the pandemic and the high interest rate environment, another key factor when analyzing the housing market is the growth in remote work. This growth has affected home prices as well. Data from Redfin shows that by the end of 2022, the total value of U.S. homes stood at $45.3 trillion, as it marked a 4.9% or $2.3 trillion drop from June – the largest in history. The biggest losers in this were areas like the San Francisco Bay Area, where home prices dropped by 6.7% annually and shed $37 billion in revenue. However, suburban areas saw home prices grow by 6.4% annually to sit at $25 trillion by December, indicating that the growth in remote work that made people shift to the city outskirts is stimulating home demand in the area.
As far as the latest situation on the ground goes, it appears that buyers are adjusting to the high interest rate environment. This has injected cautious optimism into the industry, with the management of KB Home (NYSE:KBH) sharing during their latest earnings call that:
Buyers seem to be acknowledging that these higher rates are the new normal as they return to the market. Our gross orders improved significantly on a sequential basis with January’s orders increasing 64% relative to December and February increasing 58% versus January. For the quarter, our gross orders were 3,357, a year-over-year decline of 29%. On a per community basis, our gross absorption pace reached 6.6 orders per month in February above our long-term average for that month, contributing to an overall monthly pace of 4.5 gross orders per community for the quarter. We had a number of divisions that outperform this average, including Inland Empire, Sacramento, Las Vegas, Phoenix, and Orlando. For the quarter, our total cancellations moderated sequentially and generally homes and backlog are closing when they are completed.
As we continue to deliver out the backlog of orders failed that were written last summer during a lower interest rate environment, our cancellation rate should decline further. In the early weeks of March, our net orders have remained strong. For the first two and a half weeks of our 2023 second quarter, our net orders were down 24% against a very strong comparable prior year period. Although we do not typically provide an intra-quarter update on this call or a projected range for net orders because we are only a few weeks into the quarter, we believe it is helpful for investors due to the volatility in market conditions. While interest rate and economic uncertainties pose a large risk to the near-term demand, we are encouraged with our recent order trends.
With these details in mind, let’s take a look at the most overvalued housing markets in the U.S.
Our Methodology
To compile our list of the most overvalued housing markets in America, we used data from the Florida Atlantic University’s College of Business. It uses historical trends in home prices to smoothen out any suspicious jumps or falls in current prices that might be influenced by temporary developments. These are used to calculate a fair value of a home, and this is compared to the home prices in a metropolitan area courtesy of the Zillow Home Value Index to determine overvalued housing markets in percentage terms. The housing markets with the greatest overprice are listed below in ascending order.
Most Overpriced Housing Markets in the U.S.
20. Phoenix, Arizona
Home Overprice Percentage: 36.28%
Phoenix is the most populous city in Arizona housing close to two million people. It is also the capital of the state and has large mining, retailing, and electronics firms.
19. Grand Rapids, Michigan
Home Overprice Percentage: 36.43%
Grand Rapids is one of the smaller cities on our list, with a population of 198,917. Despite this, it houses the second largest number of people in Michigan.
18. Durham, North Carolina
Home Overprice Percentage: 36.43%
Durham is a Southeastern American city in North Carolina. It is best known for Duke University, which is one of the largest employers in the area.
17. Knoxville, Tennessee
Home Overprice Percentage: 37.18%
Knoxville is the third largest city in Tennessee housing roughly two hundred thousand people. It is a hub for power production and logistics in America.
16. Greensboro, North Carolina
Home Overprice Percentage: 37.64%
Greensboro has a population of 299,035. It has a presence of aircraft manufacturers, cars, trucks, restaurant chains, and textile manufacturers in its economy.
15. Las Vegas, Nevada
Home Overprice Percentage: 37.90%
Las Vegas is a tourism hub in America, attracting visitors from both abroad and in the U.S. It has the largest casinos and gaming locations in America.
14. Miami, Florida
Home Overprice Percentage: 39.38%
Miami is one of the largest cities in Florida housing more than four hundred thousand people. It is also one of the most prosperous cities in America but with high levels of inequality.
13. Orlando, Florida
Home Overprice Percentage: 40.15%
Orlando has one of the largest research triangles in the U.S., and has the manufacturing and research facilities of advanced aerospace and technology companies.
12. Winston, North Carolina
Home Overprice Percentage: 40.53%
Winston, or Winston-Salem, has a population of roughly a quarter million people. It houses some of the biggest food and tobacco companies in America.
11. Deltona, Florida
Home Overprice Percentage: 40.62%
Deltona is another small city on our list since it houses fewer than one hundred thousand people. It has a small economy dominated by retailers.
10. Jacksonville, Florida
Home Overprice Percentage: 41.58%
Jacksonville is one of the largest cities in America in terms of area. It is a port city and has several Fortune 500 firms.
9. Palm Bay, Florida
Home Overprice Percentage: 41.91%
Palm Bay is a small city with a population of 119,760.
8. Charlotte, North Carolina
Home Overprice Percentage: 43.20%
Charlotte is the largest city in North Carolina in terms of population. It is an important banking center in the U.S. economy.
7. Lakeland, Florida
Home Overprice Percentage: 43.63%
Lakeland is an inland Floridan city which makes it a transportation hub in the state.
6. Memphis, Tennessee
Home Overprice Percentage: 44.15%
Memphis is Tennessee’s second largest city and a hub for aerospace manufacturing in America.
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Disclosure: None. 20 Most Overpriced Housing Markets in the U.S. is originally published on Insider Monkey.