Study: Detroit overtakes Atlanta as most overvalued real estate market

After more than a year in which Atlanta dominated the list of most overvalued housing markets, Detroit is now the most overvalued market in the United States, according to researchers at Florida Atlantic University and Florida International University.

After more than a year of Atlanta leading the list of most overvalued real estate markets, Detroit is now the most overvalued market in the United States, according to researchers at Florida Atlantic University and Florida International University.

According to data from the Top 100 US Housing Markets as of late May, home prices in the Detroit metropolitan area are 40.79% overvalued relative to their long-term price trends. Meanwhile, real estate premiums in Atlanta are 40.37% overvalued, making Atlanta the second most overvalued housing market in the country.

“Detroit’s rise as the nation’s most overvalued housing market is likely due to new household formation,” said Ken H. Johnson, Ph.D., a real estate economist in FAU’s College of Business. “While population growth is relatively stagnant in the region, people are starting to leave their current homes to form new ones, putting pressure on a real estate market that simply does not have enough units to meet the demand. this new demand.

The Top 100 U.S. Housing Markets, part of FAU’s Real Estate Initiative, calculates how overvalued or undervalued a typical home is in the nation’s 100 most populous metropolises, using publicly available data from Zillow. Johnson and fellow researcher Eli Beracha, Ph.D., director of FIU’s Hollo School of Real Estate, look at the difference between a city’s actual average sales price and the city’s statistically modeled average sales price to calculate a premium or discount.

Currently, 98 cities surveyed sell at a higher price, while only two, Honolulu and New Orleans, discount.

“Rents continue to rise in Detroit, indicating that real estate prices will likely continue to rise in the near future. Detroit, however, does not have the same supply and demand factors as South Florida and other parts of the Sun Belt, where the housing market is supported by rampant demand from newcomers and by population growth to support house prices,” Johnson said. “Eventually, prices will return to their long-term trends, but the question remains how to get there: will prices collapse as they did after the peak of the last housing cycle or will housing prices Will real estate prices stabilize and slowly return to regional levels? orient yourself. It will be one of the two.

Some housing markets across the country that were once among the most overvalued markets according to the Top 100 U.S. Housing Markets have already begun to return to their long-term price trends. One such market, Austin, has already begun to stabilize: Homes in the metro area are currently 11.72% overvalued, down from a peak of 46.70% in June 2022.

“Real estate prices can and will stabilize. The only question is how local real estate prices will return to the long-term price trend of a given area,” Beracha said. “Will it happen quickly, with a precipitous drop in real estate prices that will put an end to all concerns about affordability? Or will prices stabilize and slowly return to the long-term trend of the area, supporting equity values ​​but creating significant affordability issues?”

Both researchers emphasize that the goal of the Top 100 U.S. Housing Markets is to provide insight into housing markets across the country and help buyers, sellers, real estate professionals and policymakers make more informed real estate decisions.

“Ideally, you want property market prices to stay close to their long-term trend, with only limited fluctuation around that trend. Unfortunately, the last two real estate cycles have been characterized by dramatic price fluctuations above and below the long-term price trend of the markets,” Beracha said. “As a result, we are continually concerned about either a loss of wealth due to falling house prices or prolonged periods of unaffordable housing. »

-FAU-