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Homes are overvalued in most of the US, and the problem is worse in these 5 states

Homes are overvalued in most of the US, and the problem is worse in these 5 states

 


Lance Lambert, co-founder and editor-in-chief of ResiClub, discusses America's housing affordability crisis on “Making Money.”

In the United States, an overwhelming majority of housing is overvalued, as high mortgage rates and a persistent housing shortage drive home prices even higher.

A new report released by Fitch Ratings finds that housing was overvalued by 11.1% at the end of 2023, a trend occurring in approximately 90% of U.S. metropolitan areas.

But the increase in the number of homes sold at prices above the long-term average was noticeably higher in a handful of Southern states.

Tennessee, Arkansas and South Carolina saw the largest increase in overvalued housing, followed by Montana and Alabama.

CREDIT CARD DELINQUENCIES ARE ON THE INCREASE

Several factors are behind the price surge.

Years of underbuilding fueled a housing shortage in the country, a problem that was later exacerbated by rapidly rising mortgage rates and expensive building materials.

The supply of available homes remains down 34.3% from the usual amount before the COVID-19 pandemic began in early 2020, according to a separate report released by Realtor.com.

Rising mortgage rates over the past three years have also created a “golden handcuff” effect on the real estate market. Sellers who set a record mortgage rate of 3% or less at the start of the pandemic have been reluctant to sell, further limiting supply and leaving eager potential buyers with few options.

WHY CAN’T YOU FIND A HOUSE FOR SALE?

Homes in the Issaquah Highlands area in Issaquah, Washington, April 16, 2024. (Photographer: David Ryder/Bloomberg via Getty Images / Getty Images)

Although an uptick in the number of real estate listings in some markets is a welcome sign that suggests “early signs of normalization,” Fitch said “the pace is tempered by persistently high mortgage rates and rising home prices.” real estate”.

Economists predict that mortgage rates will remain high in 2024 and will only begin to fall when the Federal Reserve begins cutting rates. Even then, rates are unlikely to return to the lows seen during the pandemic. Additionally, investors are growing increasingly skeptical about the chances of a Fed rate hike this year, given a string of higher-than-expected inflation reports earlier this year.

AMERICANS EXPECT CONTINUING HIGH INFLATION IN LATEST NY FED SURVEY

Mortgage buyer Freddie Mac said Thursday that the average rate on a 30-year loan fell last week to 7.02%. Although this figure is down from the high of 7.79% reached in fall 2023, it is still significantly higher than the lows of just 3% recorded during the pandemic.

A sign in front of a home for sale in Atlanta, Georgia, September 6, 2023. (Photographer: Elijah Nouvelage/Bloomberg via Getty Images / Getty Images)

Most homeowners say they are nearly twice as willing to sell their home if their mortgage rate is 5% or higher, according to a separate Zillow survey. Currently, around 80% of mortgage holders have a rate below 5%.

A separate survey by Redfin shows that the combination of high mortgage rates and high home prices pushed the median monthly housing payment to a record high of $2,775, an 11% increase from the same period l 'last year.

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“Market conditions for buyers remain challenging with few homes listed and homeownership costs continuing to rise,” said Ben Ayers, Nationwide senior economist. “Despite strong fundamentals for demographic demand and a strong job market, many first-time buyers are being priced out of the market due to high financing rates and rising prices.”

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