As inflation continues to grip the U.S.’s economic outlook, a national economist is predicting some “overvalued” regional housing markets could see home prices drop 15% to 20% if a recession hits.
At the top of the list of 40 regional housing markets that are most likely to see such price falls over the next year is Boise, Idaho.
That’s according to a Fortune report published Monday, using exclusive access to Moody’s Analytics updated proprietary analysis of U.S. housing markets.
Housing market predictions: The Fortune/Moody’s Analytics analysis found national home prices are “overvalued” by 24.7% through the first quarter of 2022 — up from an earlier Moody’s Analytics analysis that found national home prices were “overvalued” by 20.9% as of the first quarter of 2022, Fortune reported.
- That doesn’t mean Moody’s Analytics thinks U.S. home prices are poised to plummet 24%, but rather homes are priced very high relative to household incomes based on historical trends, Fortune noted.
Just over the last two years, U.S. home prices have gone up nearly 37% since March of 2020, according to the S&P/Case-Shiller U.S. National Home Price index. It’s a trend that Mark Zandi, Moody’s Analytics’ chief economist, predicts will level off — and perhaps dip if a recession rolls in.
Zandi told Fortune he predicts the year-over-year rate of national home price growth will flatline to 0% by this time next year, but some regional markets will have it worse.
Zandi said significantly “overvalued” markets like Boise — which is overvalued by 72%, according to the Moody’s analysis — could see 5% to 10% home price declines over the next year.
- If a recession hits, which Moody’s Analytics says has a 1 in 2 chance of happening over the next 24 months, Fortune reported, then Zandi predicts national home prices could fall by about 5%, and significantly “overvalued” regional markets like Boise’s could see home prices drop by 15% to 20%.
As the Federal Reserve battles inflation and is poised to again bump up the borrowing rate, Zandi has told Fortune the housing market has slid into a “correction” as more would-be homebuyers are either priced out or put off from the market.
Last week, Len Kiefer, deputy chief economist at Freddie Mac, pointed to declining mortgage applications and tweeted the U.S. housing market is in the early stages of its biggest slowdown in over 15 years. But that’s not the same as the housing “bubble” that preceded the market crash and global financial crisis that set off the Great Recession.
Researchers and economists at the Federal Reserve Bank of Dallas have warned they see signs a U.S. housing bubble is brewing, but it’s not like the one seen before the 2007 market crash. They wrote in a March blog post that today’s price-to-income ratios are concerning — as were signs of “exuberance” in price growth — but today’s market does not have the same level of speculation that created synthetic levels of housing demand in 2006.
Housing experts in high-growth states like Utah say it’s hard to fathom a bubble popping or prices spiraling here because Utah, even amid today’s higher mortgage rates, continues to see high demand. The state has been grappling with a housing shortage that began over a decade ago and has only gotten worse, especially over the last two years.
‘Overvalued’ hot spots: Among the regional housing markets Moody’s Analytics analyzed, 183 are “overvalued” by more than 25%, according to Fortune.
“The most overvalued markets are concentrated in fast-growing cities in the Mountain West and Sunbelt that benefited from the nation’s work-from-home boom,” Fortune reported.
One city in Utah is highlighted in Moody’s Analytics’ list of top 40 regional markets that are most likely to see home prices fall over the next 12 months — but it’s on the lower end of the list: the Ogden-Clearfield area, ranked No. 36.
Zandi told Fortune these regional housing markets are particularly “juiced up” and have the highest chances of seeing home prices drop:
- Boise, Idaho.
- Colorado Springs, Colorado.
- Las Vegas, Nevada.
- Coeur d’Alene, Idaho.
- Tampa, Florida.
- Atlanta, Georgia.
- Fort Collins, Colorado.
- Sherman, Texas.
- Jacksonville, Florida.
- Idaho Falls, Idaho.
- Lakeland, Florida.
- Greeley, Colorado.
- Longview, Washington.
- Charleston, South Carolina.
- Albany, New York.
- Denver, Colorado.
- Clarkson, Tennessee.
- Greensboro, North Carolina.
- Charlotte, North Carolina.