Written by Aarti Swaminathan
One economist says he expects home price growth to slow or even fall in these regions, but not a collapse.
Home prices continue to rise across the country, but are slowing in some markets, particularly in the South.
According to an independent analysis of home values by three economists, the Sunbelt is the region most at risk of declining home prices. And they are already showing signs of softening.
One of the reports is from Florida Atlantic University and Florida International University, and the other is from CoreLogic. The third report is from the American Enterprise Institute. Taken together, these reports show that home prices were the most overvalued in several Sunbelt markets in February.
“It was shocking that the most expensive metropolitan areas in the country were all in the Sunbelt,” Ken Johnson, an economist at Florida Atlantic University, told MarketWatch. Housing in this region is generally considered more affordable than in the Northeast and West.
According to Johnson’s analysis, Atlanta ranks as the most overvalued housing market in the nation, with buyers paying about a 42% premium to buy homes in the area.
Three of the other housing markets mentioned are in Florida, followed by Cape Coral, Tampa, and Palm Bay as the most overvalued housing markets in the United States. The University of Detroit was also named to the list by Florida Atlantic University and Florida International University.
CoreLogic said in February data that the top markets “at risk of home price declines” are in the following metropolitan areas, primarily in the Sunbelt:
Palm Bay-Melbourne-Titusville, Fla. Atlanta-Sandy Springs-Roswell, Ga. Deltona-Daytona Beach-Ormond Beach, Fla. Spokane-Spokane Valley, Wash. North Port-Sarasota-Bradenton, Fla.
Johnson said the rise in home prices in southern states is due to an influx of people moving to the states during the turmoil of the pandemic, and a recent uptick in new economic activity that has attracted businesses and homebuyers to the region. He pointed out that one reason for this was that he was called to Japan.
Data from the U.S. Bureau of Economic Analysis shows that domestic production grew fastest in the Southeast in 2023. Florida had the fastest GDP growth in the Southeast with a 9.8% increase, followed by South Carolina and Kentucky.
Home prices have already begun to slow in the region, as a separate analysis of home prices by the American Enterprise Institute shows.
Austin, Texas, had the weakest housing market in February, according to AEI. The think tank pointed out that housing prices fell 3.7% from the previous year. New Orleans, Louisiana, and Deltona, Florida followed.
Metro area Annual home price growth Austin, Texas -3.70% New Orleans -2.20% Deltona, Fla. -2%
To be sure, an analysis of falling house prices and overvaluations does not necessarily mean that a real estate crash is on the horizon. “It’s not like prices are going to get so high in the South that there’s going to be a big crash,” Johnson said.
Johnson said he expects prices in the Sunbelt to slow, but noted that homes in the Sunbelt are currently out of reach for many prospective home buyers. In Florida’s hotspot Sunbelt, the median home price was $392,306 in March, compared to $298,624 in Texas, according to Zillow (ZG). The national median home price was $347,716.
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-Aarti Swaminathan
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04/06/24 0616ET
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