March 04, 2024 (MLN): National home prices in the U.S. were 11.1% overvalued for 3Q2023 on a population-weighted average basis and overvaluation is expected to remain elevated due to the continued rise in home prices in 4Q2023, says Fitch Ratings.
The increase in Fitch’s overvaluation estimate was driven primarily by accelerated real home prices, as the uptick in overvaluation occurred in more than 80% of the MSAs where home prices were rising in 3Q2023.
Other factors such as rent, unemployment, mortgage rate, real income and household growth remained comparatively stable, leading to a moderation in the sustainable home price index.
Overvaluation still dominated nationwide. As of 3Q2023, home prices in 91% of the country's MSAs were overvalued, with 58% of these areas by 10% or more.
The top three overvalued MSAs in the U.S. are Winston-Salem, NC; Memphis, TN-MS-AR and McAllen-Edinburg-Mission, TX.
There are signs of a gradual thawing in the U.S. housing market, as indicated by slight improvements in new home sales and inventory.
Challenges such as high mortgage rates and elevated home prices, which aggravate the affordability issue, continue to moderate the pace of this normalization.
Fitch expects nominal national home prices to decelerate to 0%-3% in 2024 from 5.5% in 2023, as per Fitch’s Global Housing and Mortgage Outlook.
The deceleration would be dependent on multiple factors such as poor affordability and a tight supply of homes, with the latter being the more dominant factor in sustaining positive home price growth.
