American Home Prices Peak and Fall in Some Cities

BOCA RATON, Fla. – (By Dale King, Realty News Report) — Home prices in a growing number of U.S. real estate markets appear to have peaked, according to a July 2022 analysis by researchers at Florida Atlantic University and Florida International University.

Academicians at the two South Florida institutions issue a report each month ranking the 100 most overvalued and undervalued housing markets in the nation by analyzing their premiums – the percentage above the long-term price trend that consumers must pay to purchase a property. The larger the premium, the more overpriced the market.

In July, FAU’s Ken H. Johnson, Ph.D., and FIU’s Eli Beracha, Ph.D., reported that compared to June, premiums declined in 27 markets, mostly west of the Mississippi River, and 22 of the 27 also experienced price declines. Among the metros where premiums and average prices fell was Austin, along with Denver; Minneapolis; Los Angeles; Phoenix; Salt Lake City; San Francisco and Seattle.

In June, premiums declined in 12 markets and average prices fell in seven.

“A falling premium is a classic sign of a home price peak,” according to Johnson, an economist in FAU’s College of Business. “The consistent increase in the number of premium downturns in our monthly reporting strongly suggests that individual housing markets are at, or will soon be experiencing, their pricing peaks,” he said. “We are at the turning point. The likelihood of significant price increases soon grows smaller by the day.”

Texas Home Price Spotlight

An examination of figures from Texas metros shows a couple of things. In all cases, soaring home prices accompanied by a major hike in premiums occurred during the last couple of years. In virtually all the Texas metros analyzed by the FAU and FIU researchers, home prices were either at the expected level, just a bit below or just a bit above, from at least 2005 through 2020.

Examples include:

HOUSTON (Ranked 48thof 100)

In November 2004, the average price of a home in Houston was $147,414. The expected price was $139,360, just 5.78 percent below. In 2010, the average price was 5.44 percent below the expected; in 2015, the average was 3.68 below the expected. By 2020, the average price was 1.53 percent above the expected. By July 31, 2022, the premium in Houston was a whopping 32.34 percent.

From January to July 2022, the premium in Houston rose steadily from 22.27 percent to 32.34 percent. That premium has yet to fall.

AUSTIN (Ranked fourth of 100)

The irony in the Lone Star State’s capital is that FAU/FIU figures show home prices were below expected numbers from 2005 (-1.55 percent) through 2017, when the premium was still -.09.  The price level did not go positive until 2018 when the premium measured +.53 percent.

By May of 2021, the actual price was 29.86 percent above the expected; 56.57 percent in January 2022 and 61.79 percent in July 2022.

DALLAS/FORT WORTH (Ranked 18 of 100)

In the early 2000s – 2005 to be exact – the actual price of a home in D/FW was 5.87 above what was expected. For 15 years, the premium went negative, pulling out in January 2020 when the actual price rose to 7.90 percent above the expected. A year later, it was 11.99 percent; in January 2022, it hit 37.27 and skyrocketed to 52.03 percent in July 2022.

EL PASO (Ranked 61 of 100)

For most of the early 2000s, the price of homes in El Paso, which were as low as $95,000 around 2005, tick-tocked between positive and negative. The actual price of an El Paso home in June 2022 was 25.83 above the expected. A month later, the premium trickled up to 27.08 percent.

The study data out of South Florida indicates that prices are still up in most of the markets, Beracha said. He doesn’t expect home values to fall sharply across the board, as they did during the last housing downturn of 2006-2011.

“There simply is not enough inventory to go around,” said the analyst from FIU’s Hollo School of Real Estate. “That undersupply will keep pressure on prices in many areas.”

The most recent figures reveal that Boise, Idaho, remains the nation’s most overvalued market, with buyers paying 66.7 percent above the long-term pricing trend. Austin, previously the second most overvalued market, has been surpassed by Las Vegas and Fort Myers. The Sunshine State also has two other metros, Lakeland and Tampa, in the top 10.

The researchers study markets’ long-term pricing trends going back to 1996, and the data covers single-family homes, townhomes, condominiums and co-ops.

Johnson and Beracha said they believe the severity of the U.S. housing slowdown will vary across the nation.

“Will prices decline quickly and noticeably, or will we see the nation’s inventory issues support prices at the expense of a prolonged period of housing unaffordability?” Johnson asked. “This will all depend on population movements and how fast we build much-needed housing units.”

Using open-source data from Zillow or other providers, the researchers developed a methodology to score the top 100 most overpriced or underpriced metropolitan cities in the U.S. The data allows readers to quickly see the premium or discount that they are paying in their metro and further allows them to make more informed decisions about their real estate investments.

Aug. 30, 2022 Realty News Report Copyright 2022

File: American Home Prices Peak and Fall in Some Cities

Photo credit: Ralph Bivins, Realty News Report Copyright 2022


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File: FAU. American Home Prices Peak and Fall in Some Cities


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