Fitch: Despite Some Moderation, Homes Prices Remain Overvalued in Most of the U.S.

Fitch Ratings, New York, estimates home prices are overvalued in 82% of the U.S. metros, with nearly half of these areas overvalued by 10% or more.

“National overvaluation is beginning to flatten out, with home prices 7.6% overvalued for 1Q23 on a population-weighted average basis,” Fitch Ratings Director Sean Park said. “But the ongoing rebound in quarter-over-quarter home prices is expected to lead to only a continued moderation in overvaluation.”

The non-rating action commentary from the rating agency noted home price trends vary regionally, with the West experiencing a 7.1% year-over-year decline in March, while the Northeast, Midwest and South grew by 3.4%, 3.8% and 5.56% year-over-year, respectively–albeit at a slowing pace.

“Existing home sales are down, due to the lack of affordability and supply constraints, which prevent any meaningful pull back in home prices,” Fitch said. “The severe inventory shortages are driven by homeowners’ reluctance to lose the historically low mortgage rates secured in recent years.”

Black Knight data indicates inventory remains 51% below pre-pandemic levels nationally, with over half of major markets facing more than 50% deficits.

Housing permits decreased 3.7% in June despite some positive signs in construction, and homebuilders’ confidence registered an 8.0% drop.

The full report, U.S. RMBS 2Q23 Sustainable Home Price Report, is available to Fitch subscribers here.