Some owners hold off listing and selling until the market peaks, but what if it already did? It’s too soon to be sure, but “overvalued” indicators seem to be turning.
NEW YORK – After a decade of historic home price gains, the U.S. housing market has finally slowed, and June figures show it may already have peaked.
Each month since last summer, researchers at Florida Atlantic University (FAU) and Florida International University (FIU) 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. The larger the premium, the more overpriced a market is.
In June, premiums declined in 12 markets: Los Angeles; San Francisco; Seattle; San Diego; Denver; Pittsburgh; Portland, Oregon; Austin, Texas; Ventura and Stockton, California; Boise, Idaho; and Ogden, Utah.
Until now, only Boise and Pittsburgh have experienced lower monthly premiums. With 10 more markets following suit, it suggests that home price moderation is spreading and likely to lead to falling values across much of the country, according to Ken H. Johnson, Ph.D., an economist in FAUs College of Business.
“Premium declines are an early warning sign that prices are leveling off and likely on the way back down,” he said. “We will look back at this point as the starting gun for the down slope in our next housing cycle.”
Johnson believes further evidence of a peak comes from falling average home prices from May to June in seven markets: San Jose, California (by $13,091); Austin ($3,010); Seattle ($1,922); San Francisco ($1,568); Ogden ($879); San Diego ($541) and Stockton ($128).
Eli Beracha, Ph.D., of FIUs Hollo School of Real Estate, agrees with the slowdown but wants to wait before declaring that the U.S. housing market has reached its pinnacle.
“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,” Beracha said. “We have a substantial inventory shortage around the country, and this may help to buoy prices for a while longer.”
The most recent figures reveal that Boise remains the nation’s most overvalued market, with buyers paying 69.20% above the long-term pricing trend. Austin is the second most overvalued metro at 65.79%. Utah and Florida each have two markets in the top 10.
The researchers study markets’ long-term pricing trends going back to 1996, and the data covers single-family homes, townhomes, condominiums and co-ops.
Johnson and Beracha believe the severity of the U.S. housing slowdown will vary.
In areas with population expansion and persistent inventory issues, the price declines may be muted while homes remain relentlessly unaffordable for many buyers. In markets with stagnant and declining populations and more homes for sale, prices could drop sharply, but that would be welcome relief to house hunters.
Johnson and Beracha expect more falling premiums to catch the attention of the Federal Reserve, which has raised interest rates recently to slow down price gains and curtail inflation.
Fed policies are taking hold and having the desired effect, Johnson said. Our premium declines in 12 housing markets combined with falling consumer sentiment and lagging builder confidence mean we should begin to see less aggressive behavior from the Fed as housing prices come under control.
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