Detroit has elbowed out Atlanta to become the most overpriced U.S. housing market, according to new the new Top 100 U.S. Housing Markets report from Florida Atlantic University and Florida International University.
According to data covering May housing trends, homes in the Detroit metropolitan area were found to be 40.79% overvalued compared to their long-term pricing trends. Atlanta, the previous leader for overpriced housing, was found to be 40.37% overvalued.
“Detroit’s rise as the most overvalued housing market in the country is likely due to new household formation,” said Dr. 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.”
Rounding out the top five overvalued markets were Las Vegas (37.53%), Knoxville, Tennessee (37.33%) and Cape Coral, Florida (36.11%). Eight of the top 20 overvalued markets were in Florida. Out of the 98 cities in the study, only Honolulu and New Orleans were found to be transacting at a discount.
“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 Dr. Eli Beracha, director of FIU’s Hollo School of Real Estate. “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? Ideally you want a housing market’s prices to remain close to its long-term pricing trend with only limited fluctuation around the trend. Unfortunately, the last two housing cycles have been typified by dramatic swings in prices above and below markets’ long-term pricing trend. As a result, we are continuously worried about either wealth loss from home price declines or prolonged periods of unaffordable housing.”
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