For a year straight, Atlanta sat atop the list of the most overvalued housing markets, according to researchers at Florida Atlantic University (FAU) and Florida International University (FIU). Now, Detroit steals that spot, but by just a smidge.
May data analyzed by researchers at the two universities shows that homes in the Detroit metropolitan area are 40.79% overvalued in comparison to their long-term pricing trends. Housing premiums in Atlanta are still 40.37% above long-term predicted values, dropping to number two on the list of the nation’s most overvalued housing markets. Ninety-eight cities are selling at a premium, according to the study, and Honolulu and New Orleans are the lone two transacting at a discount.
“Detroit’s rise as the most overvalued housing market in the country is likely due to new household formation,” said Ken H. Johnson, real estate economist in FAU’s College of Business. “While population growth is relatively stagnant in the area, people are starting to leave their current households to form new ones, placing pressure on a housing market that simply does not have enough units to support this new demand.”
Economists involved in the report also predict that home prices in Detroit will continue to trend upward in coming months as a result of lack of demand and supply.
“Rents are still growing in Detroit, signaling that home prices are likely to continue to grow for the near future. Detroit, however, does not have the same factors of supply and demand as South Florida and other parts of the Sun Belt where the housing market is bolstered by rampant demand from newcomers and population growth to sustain their housing prices,” Johnson said. “Eventually, prices will return to their long-term trends, but how they get there is the open question—will prices crash as they did after the last housing cycle’s peak or will home prices flatten out and slowly work their way back to the area’s trend. It will be one of the two.”
Some formerly overpriced markets have already begun recovering to long-term pricing trends, like Austin, Texas, for example—an outlier among overvalued Sun Belt states.
“Austin has already started to re-stabilize: homes in the metropolitan area are presently 11.72% overvalued, compared to the market’s peak of 46.70% in June of 2022,” the study explained.
“Housing prices can and will re-stabilize. The only question is how local home prices will return to a given area’s long-term pricing trend,” said Eli Beracha, director of FIU’s Hollo School of Real Estate, in a statement. “Will it be quickly with a precipitous fall in home prices extinguishing all worries of affordability? Or will prices flatten and slowly return to the area’s long-term trend sustaining equity values but creating considerable affordability problems?
