House prices in popular areas across the country could be majorly over-valued and could fall by up to 20 percent if there’s a recession next year, warn experts.
Mark Zandi, Moody’s Analytics chief economist told Fortune that in some areas, houses are over-priced by up to 72 percent and warned that the future may be bleak for the US property sector.
According to Fortune, homeowners in areas with “bubbly” markets could be the hardest hit by the over-pricing problem, particularly in areas including Boise in Idaho, Charlotte, North Carolina and Austin, Texas.
Fortune estimates that houses could be dramatically over-priced in some 180 areas across the state and in some places, properties could be over-valued by as much as 72 percent.
But unfortunate corporate investors are set to become even bigger players. Their buy-to-rent business model is gaining scale. With rents rising rapidly everywhere, returns are extraordinary. Homeownership, which has languished for two generations, will likely soon decline.
— Mark Zandi (@Markzandi) August 14, 2022
Even in highly sought-after locations including Los Angeles, Seattle, and Indianapolis, experts predict a damaging 30 percent difference between valuation and actual market value.
Homes in Houston are over-valued by 34.5 percent, Montana by 25 percent and property owners in Picturesque Bend in Oregon, which is often dubbed one of the most desirable locations to live, could find that their homes have been valued at 43.8 percent over what they’re worth.
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It comes as the Federal Reserve struggles to tame out-of-control inflation levels by hiking interest rates to 2.5 percent with another 3.4 percent increase coming up before the end of 2022.
Many economists predict that the interest hike will trigger a recession which will result in a massive dip in property values as less Americans will be able to afford to move.
Boise is the most over-valued area in the country, and while Zillow estimates the average house price is currently $526,000, homeowners could see the market value of their house slashed by 72 percent.
Lots of housing data out this week. It will show the market is struggling under the weight of higher mortgage rates. Adding to the slump in home sales are housing investors who have moved to the sidelines. They aren’t buying, for now, expecting prices to fall, creating bargains. pic.twitter.com/BE8EiL6Zeg
— Mark Zandi (@Markzandi) August 14, 2022
Since the dramatic rise in the cost of living, gas prices and energy bills, many Americans cannot afford to move home, and sellers are struggling to find buyers for their properties.
Mortgage rates have also doubled since this time last year and are now set at around 5.13 percent for a 30 -year loan.
The Federal Reserve hopes that by increasing interest rates, it will slow the rate at which consumers spend, levelling out the market and cooling inflation rates.
The housing market will suffer as a result, contributing to the fall in property value.
“Individual home sellers and builders were both quick to drop their prices early this summer, mostly because they had unrealistic expectations of both price and timelines,” said Shauna Pendleton, a Redfin agent in Boise.
“They priced too high because their neighbor’s home sold for an exorbitant price a few months ago and expected to receive multiple offers the first weekend because they heard stories about that happening,” she continued.
“My advice to sellers is to price their home correctly from the start, accept that the market has slowed and understand that it may take longer than 30 days to sell. If someone is selling a nice home in a desirable neighborhood, they shouldn’t need to drop their price.”