Florida and Ohio Housing Among Most Overvalued in US

The standard investment advice of buy low, sell high is getting harder to realize in 33 of the hottest metro residential markets, according to researchers at Florida Atlantic University and Florida International University. And of that group, seven are in Florida and another four, in Ohio.

“If you’re buying a home in these metros across Florida, Ohio and other areas, it’s imperative that you know you’re buying close to the peak of the market,” Ken Johnson, an economist for FAU Executive Education within the College of Business said in prepared remarks. “The danger is that prices will soon level off or even decline, and you’ll be stuck in that home for a significant amount of time before you can sell it at a profit that makes financial sense.”

His remarks, focused on consumers, also have relevance for commercial real estate investors looking at current hot markets. Buy too high and a drop could keep that investment in a portfolio for longer than the investor might like, especially as any sale or lower-price rental could cause lenders to reconsider the property’s value and, as a result, the loan.

Johnson and co-researcher Eli Beracha, a professor of real estate at FIU, take a monthly look at the hundred largest metro areas in the U.S. and rank the “most overvalued housing markets.” They say the approach is similar to the S&P CoreLogic Case-Shiller home price index.

“The nation’s most overvalued market remains Boise, Idaho, where buyers pay about 77 percent more than they should, based on past pricing trends,” says the study. “Austin, Texas, is second, with buyers paying a premium of about 60 percent.”

Some markets have seen rising values because of a demographic shift in the country to the Sun Belt and also an ongoing growth of cash that investors want to put to use. The first is a natural stimulant to housing values as people need to live somewhere. The latter can be more ephemeral. Anyone who remembers the crash of 2008 will recognize how quickly inflated prices can come tumbling down as values are largely a matter of temporary perception, not inherently fixed.

There are already headwinds in sight, with the likelihood of near-term interest rate increases and quicker bond purchase tapering by the Federal Reserve. Two recent surveys suggest that CRE economic sentiment are at best tempered, and possibly sour.