Fitch Ratings: House Prices Remain Overvalued

Fitch Ratings, New York, estimated national home prices were 9.4% overvalued on a population-weighted average basis in the second quarter of 2023 and said it expects overvaluation to remain elevated due to continued price increases in the third quarter.

Fitch based its overvaluation estimates on the CoreLogic Case-Shiller Home Price Index through the second quarter.

In a new report, U.S. RMBS Sustainable Home Price Report–4Q2023 (subscription), Fitch said the increase in its overvaluation estimate was driven primarily by accelerated home prices, as the uptick in overvaluation occurred in more than two-thirds of the metros where home prices rose in the second quarter. Other factors remained comparatively stable, leading to a more moderate increase in the sustainable home price index.

Overvaluation still dominated nationwide, the report said. Home prices in 88% of metros were overvalued as of the second quarter, with more than half of these areas overvalued by 10% or more. Significantly overvalued metros in the U.S. include Charleston-North Charleston, S.C., El Paso, Texas and Camden, N.J.

Fitch attributed the decline in existing home sales to affordability challenges for home buyers due to high mortgage rates and the sustained pressure of elevated home prices. Additionally, a stagnant supply contributed to both rising prices and lower sales volume.

Fitch projected nominal national home prices will increase 0% to 3% this year and 2% to 4% next year. Fitch said it expects the Federal Reserve to take the federal funds rate to 4.75% by the end of 2024, 75 basis points below year-end 2023 levels.