While current market conditions may not create the same housing bubble and bust scenario that rattled the U.S. economy in 2008, a number of regional markets are just as overvalued as they were at the peak of home sales activity over a decade ago, Fortune reports. National house prices were considered “overvalued” by 24.7% in the first quarter of 2022, while local incomes mostly stayed the same.
Skyrocketing home prices are quickly outpacing wage growth all across the U.S., but a recession could drive down prices and even out a disproportionate price to income ratio, experts say. According to Moody's Analytics chief economist Mark Zandi, overvalued markets like Boise and Charlotte could see 5% to 10% home price declines in the next 12 months, but a recession could cause price drops of 15% to 20%.
Among the 413 regional housing markets measured by Moody's Analytics, the firm deems 96% are "overvalued." Simply put: Nearly the entire country has house prices that are higher than underlying fundamentals would historically support.
Among the markets analyzed by Moody's Analytics, 183 are "overvalued" by more than 25%. That's up from 150 regional housing markets it deemed "overvalued" by more than 25% in the fourth quarter of 2021. The most "overvalued" markets are concentrated in fast-growing cities in the Mountain West and Sun Belt that benefited from the nation's WFH boom. That includes both Boise ("overvalued" by 72%) and Charlotte ("overvalued" by 66%).
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