Despite many Southern and Sun Belt metros tracking well above long-term models for home prices, researchers are now anticipating a slow, undramatic moderation of price increases as the country coasts down from pandemic highs.
Economists at a handful of universities collaborated over the last three years to track which housing markets are “overvalued”—that is, how far prices deviated from where trends would predict. As most cities have snapped back toward those expected levels, some areas remain stubbornly high, which isn’t necessarily a bad thing, the researchers said.
“There’s some concern in buying if you are looking to resell in a short time. But, if you are planning on staying in the home for several years, purchasing should perform as well in terms of wealth creation as renting and re-investing,” said Eli Beracha of Florida Atlantic University’s Hollo School of Real Estate.
After cities like Boise, Idaho, and Austin, Texas, saw steep price dips after a dizzying pandemic rise, the expectation for many observers was that most markets that shot up during COVID would follow suit. But according to Beracha and fellow researcher Ken H. Johnson of Florida Atlantic University, that is not likely.
“For example, in Miami, there’s no reason to suspect a crash in prices as witnessed 15 years ago when the average property lost upwards of 60% in its value. Supply and demand are completely different this time around,” Beracha said.
Most of the top “overvalued” markets now are strung across the South and the Sun Belt, with 10 cities still rated as 40% overvalued or more. But because these areas, for the most part, have either strong job markets, limited inventory, stable population growth or some combination of these, price declines are likely to be limited and moderate.
The researchers say it could be multiple years before these regions see home prices align with those longer-term models, meaning buyers and homeowners shouldn’t stress too much about losing their investment. On the other hand, affordability is also likely to remain a long-term problem in these places, with no relief for middle-income families trying to purchase a home.
Ironically, it is traditionally expensive Western markets that are offering a better deal for buyers, as prices in places like Provo, Utah, San Diego, California, and Portland, Oregon, have seen prices skew back toward the expected values.
“Prices are still moderating in the majority of the country, especially east of the Mississippi,” said Johnson. “There’s not much price movement. But, once you go West, you see some price declines.”
This uneven real estate correction was long predicted by economists, as the local nature of real estate means every city, state and metro reacts differently to shifts in the broader economy. Parsing out the probable path for any given place requires understanding a huge confluence of factors—though again, more resilient prices are broadly found across more affluent areas in the South and Sun Belt, as well as in a few Midwest cities like Grand Rapids, Michigan, and Columbus, Ohio.
Another data point to watch—price-to-rent ratios, another metric tracked by the researchers in a separate initiative which seeks to quantify the favorability of renting versus buying a home. Places like Miami, El Paso, Texas and New Orleans, Louisiana, all favor homeownership, making it more likely that prices will stay stable there.
“Higher returns from rent in the eastern half of the U.S. help explain recent price performance differences between the western and eastern halves of the country,” Johnson said. “In general, prices are probably going to be well supported in most of the Sun Belt states.”
