The latest analysis from a joint initiative between Florida Atlantic University (FAU) and Florida International University (FIU) is showing a possible peak in the housing market, indicating that prices are on their way back down to more reasonable—and hopefully affordable—levels.
The initiative has sought to track what markets are most overvalued based on publicly available pricing data, using their own methodology and historical trends. With the most recent report showing a dozen metros edging back toward more level prices, researchers are cautiously projecting that prices will continue to fall across the country.
“Premium declines are an early warning sign that prices are leveling off and likely on the way back down,” said FAU economist Ken Johnson in a statement. “We will look back at this point as the starting gun for the down slope in our next housing cycle.”
Even though the National Association of REALTORS® (NAR) found that home prices are still climbing year-over-year across the country, Johnson and fellow researcher Eli Beracha, director of FIU’s Hollo School of Real Estate, highlighted several overvalued and expensive metros that saw average home prices falling this summer.
Notable price drops came in San Jose, California (down by $13,091); Austin, Texas ($3,010); Seattle, Washington ($1,922); San Francisco, California ($1,568); Ogden, Utah ($879); San Diego, California ($541) and Stockton, California ($128).
“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,” said Beracha. “We have a substantial inventory shortage around the country, and this may help to buoy prices for a while longer.”
The top-most overvalued markets have remained largely unchanged, with Boise, Idaho, as the metro with the highest premium on homes (69.2% higher than they should be). Austin, Texas (65.8%); Las Vegas, Nevada (63.73%); Ogden, Utah (62.8%) and Fort Myers, Florida (62.3%) rounded out the top five.
At the same time, many metros are seeing their home prices continue to skew away from fundamental values—albeit more slowly than early in the year. Many of those metro were in the south, including Fort Myers, Florida (3.4% more overvalued compared to last month); Lakeland, Florida, and Nashville, Tennessee (both 2.9%); Greenville, South Carolina (2.5%); Charlotte, North Carolina (2.3%) and El Paso, Texas (2.1%).
Johnson and Beracha emphasized again, as they have in previous reports, that the upcoming (or ongoing) slowdown will look very different depending on the market. Areas that continue to struggle with new inventory but also maintain population growth will have a “muted” price decline, while areas with flat or negative population growth and more abundant housing could see “sharply” decreasing prices.
Likely, the Federal Reserve—which has indicated that it will implement another large rate hike at its meeting next week—will see falling prices as an indication that its policies are working, Johnson and Beracha said, even though the slowdown will be painful for some.
“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.”
