Study: Detroit Overtakes Atlanta as Most Overvalued Housing Market in the U.S.
02 July 2024 - 7:00PM
After more than a year of Atlanta dominating the list of most
overvalued housing markets, Detroit is now the most overpriced
market in the United States, according to researchers at Florida
Atlantic University and Florida International University.
Homes in the Detroit metropolitan area are 40.79% overvalued
compared to their long-term pricing trends, according to end of May
data from the Top 100 U.S. Housing Markets. Meanwhile, housing
premiums in Atlanta are 40.37% overvalued, bringing Atlanta in as
the second most overvalued housing market in the country.
“Detroit’s rise as the most overvalued housing market in the
country is likely due to new household formation,” said Ken H.
Johnson, Ph.D., 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.”
The Top 100 U.S. Housing Markets, a part of FAU’s Real
Estate Initiative, calculates how overvalued or undervalued the
typical home is in the country’s 100 most populated metros using
publicly available data from Zillow. Johnson and fellow researcher
Eli Beracha, Ph.D., director of FIU’s Hollo School of Real Estate,
examine the difference in actual average selling price in a city
and the city’s statistically modeled average selling price to
calculate a premium or a discount.
Currently, 98 cities in the study are selling at a premium,
while only two, Honolulu and New Orleans, are transacting at a
discount.
“Rents are still growing in Detroit, signaling that home prices
are likely to continue to grow for the near future. Detroit,
however, does not have the same factors of supply and demand as
South Florida and other parts of the Sun Belt where the housing
market is bolstered by rampant demand from newcomers and population
growth to sustain their housing prices,” Johnson said. “Eventually,
prices will return to their long-term trends, but how they get
there is the open question – will prices crash as they did after
the last housing cycle’s peak or will home prices flatten out and
slowly work their way back to the area’s trend. It will be one of
the two.”
Some housing markets in the country that were once some of the
most overpriced markets as measured by the Top 100 U.S. Housing
Markets have already begun making their way back to their long-term
pricing trends. One such market, Austin, has already started to
re-stabilize: homes in the metropolitan area are presently 11.72%
percent overvalued, compared to the markets peak of 46.70% in June
of 2022.
“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,” Beracha said. “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?”
Both researchers stress the goal of The Top 100 U.S. Housing
Markets is to give insight into housing markets around the country
and help buyers, sellers, real estate professionals, and policy
makers make more informed real estate decisions.
“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,” Beracha said. “As a result, we are
continuously worried about either wealth loss from home price
declines or prolonged periods of unaffordable housing.”
Amber Bonefont
Florida Atlantic University College of Business
5617579188
abonefont@fau.edu