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This is the most overvalued housing market in America. Spoiler: It's not in California.

Jacob Passy

Home prices skyrocketed over the past year, but the economy has yet to catch up

The breakneck pace of home-price growth nationwide has caused more markets nationwide to become overvalued, according to a new report from Fitch Ratings.

Fitch analysts estimate that home prices are 5.5% overvalued nationally as of the fourth quarter of 2020. Through November, home prices were up some 8.9% nationally since the start of the year, driving the overvaluation in the marketplace, they argued.

"Even though home-price growth accelerated in 2020 due to low mortgage rates and demand/supply imbalance, the economy has not caught up," the analysts wrote. As MarketWatch has reported, (link) the demand among home buyers has far exceeded the inventory of homes for sale.

Also see:Do Airbnb listings push up housing prices and rents? (link)

To some extent, this is a reflection of the fact that many homeowners are reluctant to list their homes for sale amid the pandemic. The imbalance between supply and demand is also the result of homebuilding activity remaining muted following the Great Recession and the preceding housing bubble.

Some housing markets are far more overvalued than others, the report noted. Fitch estimates that around 25% of metropolitan statistical areas (meaning major cities) around the U.S. are more than 10% overvalued.

Among the 20 largest metro areas nationwide, Las Vegas was the most overvalued, with Fitch estimating that home prices were overvalued by approximately 28%. Dallas--Fort Worth was next, with Fitch projecting that prices were overinflated between 20% and 24%.

Fitch also examined which states had the most overvalued housing markets. Idaho led this list, with Fitch projecting that home prices there were elevated between 30% and 34%. Nevada was next.

Idaho has become a popular destination (link) for transplants from California, particularly from San Francisco and Silicon Valley. The rise of remote working amid the pandemic has helped boost demand for homes in Boise, such that home prices there have risen upwards of 10% in recent years (link).

Other states whose housing markets were found to be overvalued in excess of 10% included Arizona, Texas, Kansas, North Dakota and Washington, among others.

Only 17 states were found to have housing markets where homes were sustainably priced, according to Fitch's analysis. And four states were rated as having undervalued housing markets: Connecticut, Illinois, Michigan and New Jersey.

-Jacob Passy; 415-439-6400; AskNewswires@dowjones.com

 

(END) Dow Jones Newswires

02-06-21 0801ET

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