Let’s talk about real estate.
Over the last four days, there has been news in the media and on the Internet about “overvalued” areas. They say that overvaluation has a correlation with all the areas where people moved in during the pandemic.
I have two articles to share with you today, but before that, I want you to remember two things.
First, real estate is regional. What you experience in one area won’t necessarily be what you’ll experience in another.
Second, there is no crash, as of today. It all looks good; we’re just easing into a normal market.
That’s what we’ve seen with all of the data I’ve shared over the previous weeks. That’s what we’re still seeing. Nothing drastic has changed.
And with that, let’s dive right into it.
The first article is by Fortune, and it says, “Keep an eye on these ‘overvalued’ housing markets as the housing boom implodes.”
According to the article, “Over the past year, home price growth (20.6%) is four times greater than income growth (4.8%).”
That’s important to note because if wages didn’t keep up, of course, there was going to be a turnaround in the housing market and the economy as a whole.
“Moody’s Analytics Chief Economist Mark Zandi tells Fortune it’s premature to use that term. A bubble, in his mind, would require both speculation-driven price growth and overvaluation. That said, we do meet at least one element of a bubble: overvaluation,” the article continues.
Zandi says we haven’t seen one of the elements required to call this a bubble: speculation-driven price growth. However, there’s no denying that some markets are deemed to be “overvalued.”
“But the overvaluation, by historical comparison, varies greatly by market,” according to Fortune.
This is what I meant—it’s regional. This is why we have to pay attention to what areas we’re talking about [that are overvalued].
“The housing pandemic boom—which is now coming to an end—was hardly even, with uprooted remote workers sending home prices in markets like Austin, Boise, and Charlotte skyrocketing well above the national rate of growth,” says the article.
Now, let me remind you of another thing you have to keep an eye on. That’s rent prices.
I’ve brought up data in the past about rents. When rent prices are as high as owning, that’s one thing to look at. Because if you are a potential homeowner and you are considering whether to continue renting when you can own a home for more or less the same price as rent, then all of a sudden, buying becomes a little bit more lucrative.
If renting is significantly less than owning a home, then that is a different story. So, watch out for that as well.
“Those ‘overvalued’ housing markets now face a test. Mortgage rates, which have jumped from 3.11% to 5.1% over the past five months, have pushed the housing market over the top. New home sales, existing home sales, and mortgage applications are all plummeting,” according to Fortune.
Personally, I don’t like the word "plummeting" because it is too strong of a word to use for existing home sales. But mortgage applications have gone down significantly.
Mike Simonsen, the owner of Altos Research, recently tweeted, “Available inventory is up 5.7% this week to 364,000 single-family homes.” He’s referring to houses active on the MLS (multiple listing service), not brand-new inventory.
However, inventories are still low nationwide.
According to the article, “In order to determine the likelihood of regional home prices dropping, CoreLogic assessed factors like income growth projections, unemployment forecasts, consumer confidence, debt-to-income ratios, affordability, mortgage rates, and inventory levels.”
These are the five groupings CoreLogic used to categorize the regional housing markets:
Fortune also has an interactive map showing the odds of regional home prices dropping in the next 12 months. If you look at the interactive map, you will see what areas fall under those five groupings according to CoreLogic’s data analysis.
Some areas under the very high category are also the same areas deemed “overvalued.” These are areas to watch out for because the chances of a decline are high in the coming year.
Now, where did people move to during the pandemic? Lake Havasu and Prescott Valley. Some also moved to Bend. These areas are deemed to have very high chances of getting a price dip.
Areas under the medium to high category are Boise, Idaho (which we all know is where a lot of people from California moved to during the pandemic) as well as a lot of the metros along the east and west coast.
If you look at the map, though, most of it is still blue (meaning low chances of getting a price drop). According to CoreLogic, Florida is another region that has seen an influx of people moving in, but it still has low chances of declining in the next year.
Let’s try to dissect it a little bit by looking back at the factors they took into account.
This is why, even if a lot of people moved to Florida, it is still a significantly healthy market. Texas and California also have pretty low chances of seeing a decline in the next year.
I thought it was interesting to look at because it gives a clearer picture of what it actually looks like for the future according to the data they have.
The article ends by listing the areas that are most likely to face problems. “In order, Zandi says these "juiced-up" regional housing markets are the most likely to see home prices decline: Boise; Colorado Springs, Colo.; Las Vegas; Coeur d’Alene, Idaho; Tampa; Atlanta; Fort Collins, Colo.; Sherman, Texas; Jacksonville; Idaho Falls, Idaho; Lakeland, Fla.; Greeley, Colo.; Longview, Wash.; Charleston, S.C.; Albany, N.Y.; Denver; Clarksville, Tenn.; Greensboro, N.C.; Charlotte.”
We’re already seeing, in areas like Atlanta and Boise, a slowdown in the higher price points. But for the median to lower entry-level points, not so much.
As we get a lot more of this data, we’re going to start seeing what areas are actually slowing down instead of just speculating.
Redfin also has an article about home prices dropping. It is titled “Home Sellers in Migration Hotspots Increasingly Turn to Price Drops.”
According to Redfin, “More than 20% of home sellers dropped their prices in April in seven of the 10 most popular April migration destinations (Cape Coral, FL; Sacramento; North Port, FL; Tampa, FL; Atlanta, GA; San Antonio, TX and Phoenix). For home sellers in these markets, the sharp increase in mortgage rates has knocked some of the wind out of a housing market that had been super-charged by surging migration.”
They also quote Shauna Pendleton, a Redfin agent, saying the following to the sellers: “If your home has been listed for several days with little or no interest from buyers, it’s time to consider dropping the price. If you do have to drop the price, you are far better off doing one large price drop instead of a series of smaller price drops, because a larger number of drops is often interpreted as desperation and encourages buyers to wait even longer or make a lower offer.”
Redfin also presented a table for “Share of Homes for Sale with a Price Drop in April 2022.”
In Boise, Idaho, 40.8% of the active listings dropped their prices. Remember that the average of a normal market is 30% of all properties, which means 3 out of 10 will have a price drop at the peak, and Boise is already way past that.
Cape Coral, Florida 32.5%, New Orleans, LA 31.6%, Baton Rouge, LA 31.0%, Sacramento, CA 29.9%, Philadelphia, PA 29.6%, you can look up the rest of the list on Redfin’s site.
I want you to understand and examine the data so that you don't believe what you hear from the media, Tiktok users, or social media in general.
We back it up with data. That’s why I do this on my YouTube Lives almost daily, so you can take a look at this data and then make up your mind on your own.
And I love it when you send me some information I didn’t know. So if you spot something that maybe I missed, or you don’t agree with me on, send it over to me. Because I dissect it, and I get to talk to economists over at Realtor.com, Redfin, and some other parts.
But this is what the data tells us: There has been no crash so far. We’re just starting to see what’s starting to look like a normal market for the majority of the real estate market in the US.
So, keep your eyes open and see what happens. Don’t freak out, and don’t give in to panic. And if you have any questions, feel free to contact me on my socials.
