After more than a year of following the nationwide meteoric rise in home prices, researchers at Florida Atlantic University (FAU) are now tracking how metros across the country are experiencing the ongoing “housing recession” as prices pull back, and have started to project where prices might soon fall—and where the floor is.
Ken H. Johnson, economist at FAU, and Eli Beracha, a researcher at Florida Atlantic University, have used their own methodology to evaluate how overvalued certain markets are, comparing current prices with projections that are based on long-term trends.
“Housing markets across the country are definitely slowing down and appear to be reaching the peaks of their current housing cycles,” said Johnson in a statement. “Buying a home now in much of the country is risky because values likely will fall if they haven’t already.”
Because of the local nature of real estate, data about the national market nearly always misses important context, and many markets have so far defied national trends. Experts have also emphasized that a variety of fundamental factors dictate what a housing correction will look like in a given area, meaning many regions will see drops of different sizes and timings.
According to Johnson and Beracha, the largest drops from market peak come in the West—San Jose, California (down 6.3%); Austin, Texas (5.5%); San Francisco (4.4%); Boise, Idaho (4.2%); and Salt Lake City, Utah (3.8%).
Almost a fifth of the metros tracked have seen their premiums fall, meaning price drops are likely in the near future. The price premium is how far that market’s home price has risen above projected values, and indicates that the region is overvalued.
Metros with falling premiums this month include Atlanta, Georgia; New York City, New York; Chicago, Illinois, and Orlando, Florida.
How far a market is above the expected average price can generally indicate how severe a price correction will be—though many other factors are at play, including population growth and available inventory.
Beracha points to Florida markets that—despite being some of the most overvalued—may see a more mild or softer decline in prices than other parts of the country.
“It is hard to say where prices will go from here in Florida,” he said in a statement. “But it seems most likely that Florida housing markets will fare better than most other markets across the country due to the persistent shortage of homes for sale and the pace at which people are relocating to the state.”
Without those foundational positives propping up a market, however, prices could potentially take a bigger hit. Oxnard, California, for instance, has seen price premiums fall by over 2% in the last two months, with homes still 25% overvalued—selling for an average of about $845,000, when projections say they should be around $675,000.
At the same time, Census data projects that the population of the Los Angeles-area suburb is falling, meaning there might not be demand to support home prices at that level. But other factors will always come into play, including the local job market or income level of buyers.
“I doubt we’ll see anything close to the downturns that occurred 15 years ago,” said Johnson.
The full rankings and methodology are available here.
