Are Home Prices Overvalued?


Moody’s Analytics last week reported that 96% of 392 MSAs are overvalued and 149 of them are overvalued by 25% or more including Denver at 35% overvalued. Mark Zandi their chief economist believes that home price appreciation nationally a year from now will show ZERO appreciation across the country and some areas may see 5% to 10% price corrections.

I believe for appreciation to flat-line requires that demand drops by 75% or more and I don’t know if that is possible. In March homes received 21 showings on average before going under contract. This doesn’t mean there are 21 buyers for every home on the market. But, I also know most buyers don’t look at more than 2 or 3 homes in one weekend unless they are looking all over the metro area. Thus, we probably have at lest 7 buyers for every home on the market. If the number of buyers per homes drops to 2 that would be awesome.

Second, nationally there are 65 million young adults born between 1986 and 2002 entering their prime home-buying years and apartment renting years and we don’t have enough housing for them with estimates that we need roughly 5 million more housing units. And apartment vacancy rates around the country are 2% to 5% with rents rising by 12% to 20% year over year. These young adults have to live somewhere.

But how can they afford a home to rent or buy? They group up to buy or rent together with 2 or 3 friends or family members. I know in the Bay Area that it often take 3 or 4 incomes to buy a home there as multi-generations live together. Or they have a family member who gifts them a ton of money to buy a home. My wife’s parents helped her youngest sister and her husband buy a home this year in Santa Cruz where home prices start at over $1 million.