Is the Housing Market Overvalued?

Will home prices adjust downward?
Are home prices slightly inflated right now?

Two years ago we were in the midst of national lockdowns due to a novel virus spreading across the globe. As for the real estate market, many states had banned in person showings and many sellers were not comfortable with anyone entering their homes. The universal thought was that the housing market was about to collapse. In fact many home buyers that were under contract to purchase a property during this time were frantically looking for ways to cancel their contracts. What took place next changed the trajectory forever. With Congress and the Federal Reserve stepping in to provide significant economic aid, the housing market quickly shifted into high gear. Fast forward to the present time and we have now seen housing prices approximately 34% higher across the nation over the past two years.

The Federal Reserve’s dilemma

The mandate from Congress to the Federal Reserve is twofold:

  1. Maintain maximum employment
  2. Control inflation (i.e. keep prices stable)

Of course, this is much easier said than done. With inflation at 40-year highs, it is safe to assume that combating inflation is the top priority. Needless to say, a Federal Reserve laser-focused on fighting inflation will have big implications for the housing market. In fact, over the past two months, the average 30-year fixed mortgage rate has risen from 3.11% to 5.1%! As these rates continue to increase, we will see more home buyers being priced out of the market and thus softening home buyer demand.

Which markets are overvalued?

Most economists do not see a national home price correction taking place. However, some markets are considered to be overvalued at the present time. In these markets, it is possible to see some price corrections of approximately 10% or so. Recently, Fortune magazine published Moody’s Analytics for its proprietary analysis of U.S. housing markets. The link to this article can be found here. The main goal of this analysis was to determine whether local income levels could support local home prices. Interestingly, 96% of the metropolitan statistical areas studied were deemed to be overvalued. According to this analysis, the most overvalued market in the country is Boise, ID, where home prices are 73% above what fundamentals would support.


It is safe to assume that home prices should begin to level off across the country. With this said, we continue to see a record level of Americans moving into The Sunshine State each year. Although home prices in Florida can not continue to rise at the same rate as they have over the past two years, we do expect to see persistently strong buyer demand moving forward. As has been the case in the recent months, many of these buyers will be from out-of-state or even from other countries. Are you looking for assistance with either buying or selling a home in the South Florida market? Contact Live South Florida Realty, Inc. today at (561) 352-6932!

At Live South Florida Realty, Inc. we have assisted many clients with their real estate needs. Are you looking to buy or sell a property in South Florida? Now more than ever, it is critical to have a qualified real estate team and the proper search tools behind you. Live South Florida Realty, Inc., has been a leader in the South Florida market for many years. Let our team of professionals assist you with buying or selling your piece of paradise today! In addition, our recently launched “Florida Home Search” app is now available on the Apple App Store and Google Play Store. With real-time MLS feeds, this app lets you set your own alerts to notify you as soon as a property meeting your needs hits the market. Furthermore, it will also let you know of recent closed sales in your area so that you may be even more educated on the market. Be sure to download this app for your smartphone or tablet today!

By natasha moore

REALTOR® with Live South Florida Realty, Inc.

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