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Overvalued Markets Could See Significant Price Deceleration, Economists Say


Overvalued Markets Could See Significant Price Deceleration, Economists Say

Home prices are rising faster than household incomes in many metro markets across the U.S., but more balance could be on the horizon, some economists say

May 3, 2022
Boise, Idaho aerial

A swift uptick in mortgage rates is expected to result in economic shock which could ease red-hot housing prices in highly competitive markets, and according to Fortune, a real estate cooldown is already underway. Of 392 metropolitan areas studied by Moody’s Analytics, 96% are “overvalued” relative to local incomes, a common occurrence exacerbated by migrational patterns driving up the average income in markets like Boise, a popular hotspot for high-income California expats.

According to market economists like Mark Zandi, however, price to income discrepancies aren’t sustainable in the long term and will eventually lead to significant price deceleration as a growing number of buyers are priced out of overheated housing markets. 

But the ongoing housing boom—which has seen home prices climb 34% over the past two years—could soon wind down. At least that's according to Mark Zandi, chief economist at Moody's Analytics.

At this point, Zandi doesn't foresee a national home price correction. However, he does believe some of the nation's most overpriced housing markets could see home prices decline up to 10% over the coming year.

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