Housing prices have been under intense observation lately as rising mortgage rates and rampant inflation fail to cool down the real estate market. As prices go up, some markets are bound to enjoy the fruits of inflation more than others. In fact, the most overvalued housing markets present opportunities to homebuyers, should a recession force prices back down.
Home prices have remained stubbornly elevated for most of 2022. Even as the Federal Reserve continues to hike rates, home prices are still growing. The Fed has already pushed interest rates 1.5% this year, with more hikes likely on the way. Mortgage rates have responded accordingly, rising to their highest level since 2008. While there are signs of a cooling — like falling mortgage applications and home sales — there are also barriers to a downright housing crash.
Home supply in the U.S. remains woefully constrained. Since the start of the pandemic, home construction has been far behind historical averages. Add in an unprecedented surge in homebuyers due to pandemic-era near-zero interest rates and the failures of the country’s housing infrastructure become far more clear. Today, the U.S. Department of Housing released data for June showing the lowest rate of home construction since September.
As housing remains supply-pinched, some markets are naturally more subject to price gouging. Let’s take a look at some of the most overvalued markets in the U.S. today.
5 of the Most Overvalued Housing Markets
- Boise, Idaho is likely the single most overvalued housing market in the country right now. The city saw a surge in interest as tech workers abandoned Silicone Valley en masse when quarantine first took root. In just the past year, the city’s population has grown more than 3%. According to Moody’s, the housing market is 73% overvalued.
- Up next is Colorado Springs, which has largely benefitted from its “proximity to Denver” and homebuyer protection laws. These laws prohibit certain levels of price gouging. Colorado Springs currently has a median home price of about $450,000, up nearly 15% year-over-year (YOY).
- Per MoneyWise, Las Vegas, Nevada is another major hot spot. The city saw average home prices reach as high as $482,000 in May. There are signs of a pullback, however. Home sales in Vegas are down 8.8% from last year.
- Phoenix, Arizona is also becoming subject to possibly substantial price deflation. At the start of the pandemic, Phoenix’s housing prices grew at one of the fastest paces in the country. Since then, though, things have slowed down a bit, with a noticeable drop in mortgage application volume.
- Finally, Coeur D’Alene, Idaho rounds out this list of overvalued housing markets for reasons similar to Boise. It saw home construction ramp up dramatically during the pandemic, resulting in buyers paying a roughly 55% premium.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.