Ask an #Expert - Is there any way to temper America's boiling housing market?

Apr 14, 2022

3 min

Ken  Johnson, Ph.D.


When mortgage rates rise, home prices tend to level off or decline because fewer people can afford to buy. Experts are counting on that adage to help cool the nation’s torrid housing market.

But the latest analysis of the most overvalued markets shows prices still are climbing despite the increasing mortgage rates, which last week reached their highest level in more than three years.

In all 100 markets surveyed by researchers at Florida Atlantic University and Florida International University, buyers continue to pay higher premiums – that’s the difference between where home prices should be based on historical trends and where they are now.

Two months ago, Los Angeles, Provo, Utah and other metro areas in the Western part of the country developed “pricing crowns,” an indication that those housing markets could be slowing. But home values have since reaccelerated, prompting concern that a looming downturn in some areas could be worse than expected.

“Eventually mortgage rates will slow down home prices, but it hasn’t happened so far,” said Ken H. Johnson, Ph.D., an economist in FAU’s College of Business. “We should not see rapid upticks in prices as mortgage rates rise. It’s that kind of exuberance that led to past housing downturns.”

Boise, Idaho is the nation’s most overvalued housing market, as it has been since the researchers first released their rankings last summer.

At the end of February, Boise buyers were paying an average price of $513,849, even though historical trends indicate the average price should be $291,389. That 76.34 percent premium is well ahead of No. 2 Austin, Texas (64.80 percent). The full rankings with interactive graphics can be found here.

Charlotte, North Carolina entered the top 10 overvalued markets for the first time with a premium of 50.14 percent. February’s average home price in Charlotte was $353,106, although a history of past sales suggests that price should be $235,188.

“Charlotte’s significant and rapidly growing premium is similar to other Southern metros that are all experiencing fast price appreciation,” said Eli Beracha, Ph.D., of FIU’s Hollo School of Real Estate. “The drivers of this appear to be large population increases in these areas combined with a significant shortage in housing inventory.”

Each month, Johnson and Beracha rank the most overvalued housing markets of America’s 100 largest metros, similar to the popular S&P CoreLogic Case-Shiller home price index. Johnson and Beracha incorporate average or expected price changes and provide an estimate of how much a market’s housing stock is over- or undervalued, relative to its historic pricing. The data covers single-family homes, townhomes, condominiums and co-ops.

Six Florida metros, led by Lakeland, all rank among the nation’s 25 most overvalued markets with premiums of more than 40 percent. The Miami metro, with a premium of nearly 25 percent, remains the least overvalued market in the Sunshine State.

As the U.S. housing market cools, metros with strong population gains and shortages of homes for sale will fare best, although those markets will continue to struggle with affordability, the researchers predict. Metros with flat or falling populations and more available homes for sale could face price declines, making those areas more attainable for young families and first-time buyers.

Johnson said consumers could be taking big risks if they jump into the U.S. housing market now.

“We are near the peak of the current housing cycle, and you never want to buy near the top of the market,” he said. “Consumers need to pause if their main motivation is to buy because they fear prices will rise even higher. Prices are high now, but they always moderate back toward a long-term pricing trend. Perhaps staying where you are now and letting this irrational market settle would be one of the best decisions you could make.”

Ken Johnson is the associate dean and professor in the College of Business at Florida Atlantic University. Ken is available to speak to media about this topic – simply click on his icon to arrange an interview and time.

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Ken  Johnson, Ph.D.

Ken Johnson, Ph.D.

Associate Dean

Ken Johnson's research covers housing, housing cycles, and mortgage markets.

Rental HousingReal Estate MarketsHomeownershipReal EstateReal Estate Economics

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