Where to Find Overvalued Homes – Correction Worries

HOUSTON – (By Dale King, Realty News Report) – Home prices in many metropolitan areas are too high – overvalued and risky, according to new studies by a team of real estate professors from two South Florida universities. Where to find overvalued homes?

Austin and Boise, Idaho – markets where thousands of Californians have relocated recently – lead the list overvalued home prices, according to educators from Florida Atlantic University and Florida International University.

Boise, Idaho, where a domicile can sport a price tag that’s nearly 81 percent higher than its true value leads the list. And No. 2 is Austin where homes are nearly 51 percent overpriced – the second largest percentage among 100 big cities nationwide.

‘Worries of a Correction Continue’

“In these housing markets, worries of a correction continue,” said Ken H. Johnson, Ph.D., co-author of the Beracha, Hardin & Johnson Buy vs. Rent Index and a real estate economist and associate dean in FAU’s College of Businessin Boca Raton, Fla.

“At this time, buying carries considerable risk,” he added. “Consumers can build wealth faster if they sit out these sharp price increases and instead rent a similar property and reinvest their savings in a portfolio of stocks and bonds.”

“Consumers buying now in the most overvalued markets are paying near peak prices and risk being stuck for a significant amount of time before they can realize solid returns on their real estate investments, noted Johnson.

The Buy vs. Rent Index also shows that renting and reinvesting beats out buying in such other metro centers as Atlanta, Los Angeles, Pittsburgh, Philadelphia, San Diego, Minneapolis and Portland, Ore.

Houston and Dallas Near Peak

The latest results of the index also show prices are “at or near their peaks in Dallas, Denver, Houston, Kansas City, Seattle and Miami. As a result, residents in those areas would be better off renting and reinvesting the money they would have spent on ownership.”

The list of 100 over/underpriced markets in the US says Austin is exactly 50.72 percent overvalued. Next Texas metro on the list is Dallas/Fort Worth, in 19thplace. D/FW homes can meander to a point that’s nearly a third more than market value. Specifically, 31.57 percent.

Right around the halfway point is San Antonio, in 48thplace, with an overvalue rating of 20.99 percent was determined by analysts. Next is Houston, in 57thplace with an overvalue rating of 17.99 percent, then El Paso, 73rd, at 13.11 percent.

In only the last five communities on the list of 100 are homes considered undervalued: Urban Honolulu, minus 4.93 percent, is the most sub-value municipality. Second is Virginia Beach, Va., at minus 2.46 percent, Baltimore, third most undervalued at minus 1.69 percent, New York City, minus .79 percent and Baton Rouge, La., at minus .37 percent.

To get their research job done, the FAU and FIU professors analyzed 23 major U.S. metropolitan markets, factoring in home prices, rents, mortgage rates, home maintenance costs, homeowner association dues and other household expenses.

The professors noted that strong demand for homes, near-record-low mortgage rates and a shortage of properties for sale keep pushing prices higher in much of the country, “making it more advantageous for consumers in many markets to postpone ownership.”

Buying and building equity, for example, makes more sense in so-called undervalued areas such as Chicago, New York, Honolulu, San Francisco, Cincinnati, Boston, Cleveland, Detroit, Milwaukee and St. Louis, they noted.

“In these metros, the cost of renting is outpacing the cost of ownership, resulting in some surprising recommended buys,” said FIU’s William Hardin, an index co-author.

The results table helps to counter the traditional argument that homeownership is far superior to renting over the long term. The BH&J Buy vs. Rent Index, first published in 2013, shows that renting and reinvesting can be equally or more lucrative for disciplined savers.

One option consumers should never do is rent and pocket the savings each month, said Eli Beracha, index co-author and director of FIU’s Hollo School of Real Estate.

“That’s one of the worst things you can do if your goal is to build a nest egg,” Beracha said. “If you’re not inclined to invest your savings, you might as well buy a house, even at the top of the market, because owning a home would at least force you to save.”

Phoenix, Las Vegas and Stockton, California – three metropolitan areas hit hard by the nation’s housing collapse more than a decade ago – now rank among the 10 most overvalued of the nation’s largest housing markets, according to a new analysis by professors at Florida Atlantic University and Florida International University.

Based on past pricing history, homes in Phoenix are selling for a 42.31 percent premium. Homes in Las Vegas are selling for 41.88 percent above their long-term pricing trend, just ahead of Stockton’s 38.50 percent. The full ranking of the 100 largest metros can be found here.

“In the Top 10 markets, potential buyers might want to consider renting and reinvesting money that they otherwise would have put into homeownership,” Johnson said. “Renting and reinvesting has been shown to often outperform ownership in terms of wealth creation.”

The nation’s most overvalued market is Boise, Idaho, where homes are selling for 80.64 percent more than they should, based on a history of past pricing. Work-from-home consumers priced out of other markets during the pandemic appear to be leaving those expensive cities and driving up values in Boise, according to Johnson and Beracha,.

Meanwhile, Baltimore and Virginia Beach, Virginia, are among the 10 markets offering the best deals to buyers, the analysis shows.

In Virginia Beach, homes are selling for a 2.46 discount. Baltimore homes are selling for a 1.69 percent discount. Leading the list of most undervalued areas is Honolulu, Hawaii, where homes are selling for 4.93 percent less than they should.

“Consumers who buy in these and other Bottom 10 markets should feel comfortable as home prices, on average, appear to have room to grow based on past pricing behavior,” Beracha said.

This is the first of what will be monthly reports by Beracha and Johnson. They analyze the nation’s 100 largest metro areas using publicly available data from online real estate portal Zillow or other providers. The data, which extends from January 1996 through the end of last month, includes single-family homes, townhomes, condominiums and co-ops.

Recent reports say the median price of homes in Austin is approaching a half-million dollars. Specifically, $470,000. This raises a question. Does that price reflect the true value of the residence?

More homeowners across the nation will be asking the value question in 2022.

Sept. 17, 2021 Realty News Report Copyright 2021

Photo credit: Ralph Bivins, Realty News Report 2021

For more about Texas real estate, check out the book Houston 2020: America’s Boom Town – An Extreme Close Up  by Ralph Bivins. Available on Amazon  http://tiny.cc/4a2g6y  

Houston 2020 Ebook version  https://tinyurl.com/4xm7z8b5      

File: Where to Find Overvalued Homes

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