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  • Writer's pictureRealFacts Editorial Team

Most U.S. Homes Are Overvalued

U.S. Home

In the latest report by Fitch Ratings, it has been revealed that the housing market in the United States is facing a significant issue of overvaluation, with home prices soaring beyond reasonable levels. According to the report, which focuses on Residential Mortgage-Backed Securities (RMBS), the overvaluation of homes across the nation averaged at 11.1% in the fourth quarter of 2023, based on a population-weighted average.

The report paints a concerning picture, indicating that this overvaluation trend is widespread, affecting as much as 90% of the country's metropolitan statistical areas. While there was a slight improvement from the previous quarter, with 56% of MSAs being overvalued by more than 10%, it remains a major issue that demands attention.

Leading the list of the most overvalued metro areas is Memphis, Tennessee, encompassing parts of Mississippi and Arkansas as well. Known as the heart of the Mid-South, Memphis's commercial and cultural significance doesn't shield it from the economic implications of its housing market. Also making the top three overvalued MSAs are Buffalo-Cheektowaga-Niagara Falls, NY, and Indianapolis-Carmel-Anderson, IN.

Fitch Ratings has highlighted the consistency of its estimates over time, linking them to concurrent increases in the Home Price Index (HPI) and Sustainable Home Price (SHP) Index. The CoreLogic Case-Shiller HPI indicated a 5.5% annual rise in nationwide home prices as of February 2024, up 0.7% from the previous month.

One of the factors driving the SHP upward is the rise in rents, suggesting a robust demand for housing. Fitch noted a 1.11% increase in rents in the fourth quarter of 2023 compared to the previous quarter, according to the Zillow Observed Rental Index (ZORI). However, while rising rents indicate demand, they also contribute to the affordability challenge.

Fitch also mentioned that the SHP is moderated by various factors including unemployment rates, mortgage rates, real income, and household growth, which have remained relatively stable. Nevertheless, the increase in both active and new property listings suggests early signs of a correction in the housing market.

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