House prices could fall by up to 20 percent next year if there’s a recession, experts warn – and property in some areas of the country is overvalued by as much as 72 percent. Mark Zandi, chief economist for Moody’s Analytics, was pessimistic about the housing market in May, but he has now made his forecasts even more bleak, Fortune reported on Wednesday.
It comes amid ongoing arguments over whether the US is already in a recession, with the country recording two consecutive quarters of negative growth – the traditional definition of such a slump.
The news is particularly dire for people who have purchased homes in what Fortune terms ‘bubbly’ markets, with Boise in Idaho, Charlotte in North Carolina, and Austin in Texas all named the most overvalued markets.
But a total of 180 other areas across the US have property deemed overvalued, many of them highly desirable. They include LA, Orlando, Seattle, and Indianapolis, where property is all estimated to be 30 percent overvalued. Homes in Houston are around 34.5 percent overvalued, while properties in Montana are 25 percent overvalued.
Picturesque Bend in Oregon – regularly voted one of the United States’ best places to live – has homes that are 43.8 percent overvalued, according to Moody’s, with Billings in Montana 25 percent overvalued.
It comes weeks after the US Central Bank hiked the benchmark interest rate to 2.5 per cent, with another increase to 3.4 per cent expected by the end of the year as the Fed tries to tame inflation.
Those interest rate hikes are expected to plunge the US into recession, and will also likely lower the cost of property as it becomes too expensive for many to get a mortgage, cratering demand.
The most over-valued areas are largely in the Mountain West and Sunbelt. Boise, Idaho – which saw house prices skyrocket during the pandemic, as droves swapped pricey cities in the Bay Area and wider California for the buzzing Idaho city – is the most overvalued area, Zandi said.
Boise, where the current average house is worth $526,050 according to Zillow, is almost 72 percent overvalued, although a recession is only expected to wipe 20 percent off the prices of homes at most.
Charlotte in North Carolina is the second most overvalued, at 66 percent, with Austin third place at 61 percent. Charlotte, North Carolina, is 66 percent overvalued, with the average home at $406,137 at the moment – and Austin, Texas is 61 percent overvalued, at an average of $661,337.
Flagstaff, Arizona ($668,845), is overvalued by 61 percent, while Nashville, Tennessee ($460,447) is 54 percent overvalued and Miami ($552,082) is 34 percent. It is unclear why those overvalued areas are expected to see a maximum of 20 percent wiped off house prices, rather than the full amount experts believe they’re overvalued by.
Only a handful of places were considered undervalued – the most undervalued being Decatur, Illinois, where the average house is $92,129, undervalued at 6 percent. Montgomery, Alabama ($135,742) is 2.6 percent undervalued and Grant’s Pass, Oregon ($418,440) is 3.1 percent. (Daily Mail)
