S&P Global Ratings: U.S. Home Price Overvaluation Softens

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S&P Global Ratings, New York, said U.S. home price overvaluation fell roughly one percentage point to 14.3% as of the fourth quarter.

In a new report, U.S. Home Price Overvaluation Softens As Wage Growth Outpaces Home Price Gains (subscription), S&P Global Ratings updated its home price overvaluation assessment and the related Federal Housing Finance Agency Home Price Index inputs with data from the fourth quarter of 2023. “Our assessment fell slightly to 14.3% as per capita income growth outpaced home price appreciation,” the report said. “However, it is still comparable to our last reading, which was an overvaluation of 15.6% at the national level based on third-quarter 2023 data” (found in S&P’s Feb. 5, 2024 report).

S&P Global Ratings said the non-seasonally adjusted All-Transactions FHFA Home Price Index was nearly flat between the third and fourth quarters of 2023, while the Purchase-Only Index decreased 0.29%. “Regional variation persists, however, and our assessment shows that about 89% of metropolitan statistical areas or divisions are overvalued, consistent with our prior assessment,” the report said.

The ratings firm said it believes the credit impact home price overvaluation could have on U.S. residential mortgage-backed securities will depend on the geographic distribution of the mortgage pools and the valuation dates of the underlying properties backing the loans in those pools.