Study: Home Prices are Re-Accelerating, But for How Long?
By Amber Bonefont | 09/07/2023Tags: Economics | Executive-Education | Finance | Press-Releases | Real-Estate
Categories: Faculty/Staff | Initiatives | Research
Home prices are picking up in some parts of the country, though it is doubtful prices will jump significantly in the future, according to researchers at Florida Atlantic University and Florida International University.
Housing premiums have ticked up in seven out of the top 10 hottest housing markets in the country amid concerns that the real estate market is taking off again after years of record price growth, according to July data from the Top 100 U.S. Housing Markets.
In Atlanta, the premium a buyer paid for the typical home increased to 47.06 percent. Other metros among the most overvalued in the country that saw their premiums rise in the past month include: Detroit, 46.26 percent; Tampa, 42.13 percent; Winston, North Carolina, 42.09 percent; Charlotte, North Carolina, 41.64 percent; Cape Coral, 41.47 percent; and North Port, 41.36.
“We are concerned that prices are once again rising and creating a greater gap between average prices and the long-term trend in housing prices as buyers are faced with rising mortgage rates and price growth on both sides,” said Ken H. Johnson, Ph.D., real estate economist with FAU’s College of Business. “However, a close look at the hottest housing markets reveals that while the long-term premiums are rising, the growth is rather slow, suggesting that this is merely an uptick due to the summer selling season.”
The full rankings can be found here.
The Top 100 U.S. Housing Markets, produced monthly by Johnson and fellow researcher Eli Beracha, Ph.D., director of FIU’s Hollo School of Real Estate, looks at the difference in the actual home price compared to the long-term trend to calculate how overvalued housing markets are in the 100 largest metropolitan areas in the country using publicly available data from Zillow. It is part of FAU’s Real Estate Initiative, a series of three monthly indices designed to help the average consumer make informed choices about the housing market in the United States.
Three of the top 10 hottest markets saw premiums decline slightly, suggesting that some areas in the country might be seeing a price slowdown. Memphis, Tennessee’s premium came in at 41.09 percent, a .07 decrease from the month before; followed by Lakeland, 39.53 percent, a .07 decrease from the month before; and Palm Bay, 39.51 percent, a .02 decrease.
Looking at the 10 hottest markets’ price-to-rent ratios, or the ratio of home prices to annualized rent, shows that overall, these ratios are on the rise, suggesting that the price increases seen will not be supported in the long-run.
“Typically, low and falling price-to-rent ratios imply that prices will increase,” Beracha said. “However, looking at the hottest markets in the country, price-to-rent ratios are increasing in seven of the markets, while in Memphis and Palm Bay, the ratios are unchanged. Only one market, Winston, North Carolina, saw a decline in this measure. We are back to prices rising faster than rents, which is not supportive of prices in the long-run.”
Both Johnson and Beracha agree that outside of the seasonal uptick of the summer selling season, it is possible the market could enter a pause soon.
“The direction we will go next will play out this coming fall,” Johnson said. “If pushed, I think we are in for a period of relatively flat housing price performance around the country as high mortgage rates put downward pressure on prices, while significant demand from household formation and an inventory shortage places upward pressure. These forces, for now, should balance each other out.”