Highly overvalued cities in the U.S. keeps growing

Homebuyers in 15 of the nation’s 100 largest housing markets paid a premium of 50% or more over historic trends for their properties, up from just two last summer.

Boise, Idaho, remains the most overvalued metro area in the nation, according to the study from Florida Atlantic University and Florida International University. Ironically, it is the only city in the 100 largest markets where prices have gone down from the prior month.

Historic price trends for the city indicate homes should cost an average of $299,202. But the typical buyer paid $516,548 in May, 72.64% above that historic level.

In Austin, Texas, buyers paid 67.7% more than they should, according to the methodology created by Ken H. Johnson of FAU and Eli Beracha of FIU. Buyers in Ogden, Utah paid 64.73% over what the trend indicated, while in Las Vegas prices were 61.48% higher than the baseline.

Nearly 90% of the nation’s housing markets had price-to-income ratios above their historic average in the fourth quarter of 2021, a recent Standard & Poor’s study found.

The number of metro areas where buyers are paying more than 50% over the long-term trend is growing. The April data found 13 cities met this criteria, with three of those at a 60% premium. Boise led the way at 75.18%, followed by Austin, 66.29%, and Ogden, 66.33%.

In the first month which this data became available, July 2021, only two cities came in over the 50% threshold: Boise, at a price premium of 80.64%, and Austin at 50.72%.

“If we’re not at the peak of the current housing cycle, we’re awfully close,” Johnson said in a press release. “Recent buyers in many of these cities may have to endure stagnant or falling home values while the market settles — and that’s not what they want to hear if they had planned to resell anytime soon.”

But even as home prices nationwide continue to rise to record levels, market conditions are much different now than during the housing crisis, a time when borrowers overpaid for properties and soon found the values falling underwater.

A first quarter 2005 analysis found that nearly one-third of the 299 housing markets examined by National City Corp. and Global Insight were considered “extremely overvalued.”

But three years later, Global Insight and NCC found zero markets which met that criteria, signs that the housing bubble popped.

“In the prior downturn, many homes lost half of their values, but I don’t think we’ll see anything close to that this time around,” Beracha said. “Still, it could be painful for many consumers who are buying near the top of the market.”