Published by FOX Business | May 20, 2024
An overwhelming majority of homes in the U.S. are overvalued as steep mortgage rates and an ongoing housing shortage push the price of real estate even higher.
A new report published by Fitch Ratings found that homes were overvalued by 11.1% at the end of 2023, a trend occurring in about 90% of U.S. metro areas.
But the increase in homes being sold at prices over the long-term average was noticeably higher in a handful of Southern states.
Tennessee, Arkansas and South Carolina saw the sharpest rise in overvalued homes, followed by Montana and Alabama.
There are a number of driving forces behind the spike in prices.
Years of underbuilding fueled a shortage of homes in the country, a problem that was later exacerbated by the rapid rise in mortgage rates and expensive construction materials.
Available home supply remains down a stunning 34.3% from the typical amount before the COVID-19 pandemic began in early 2020, according to a separate report published by Realtor.com.
While an uptick in the number of home listings in certain markets is a welcome sign that suggests “early signs of normalization,” Fitch said “the pace is being tempered by persistently high mortgage rates and the escalation of home prices.”
Economists predict that mortgage rates will remain elevated in 2024 and that they will only begin to fall once the Federal Reserve starts cutting rates. Even then, rates are unlikely to return to the lows seen during the pandemic. On top of that, investors are growing skeptical about the odds of a Fed rate hike this year given the string of hotter-than-expected inflation reports at the beginning of the year.
