Housing Premiums are Declining in These Cities

Equity gains remain strong for current homeowners and prospective homebuyers can get a little breather knowing that prices are slightly more stable, according to the latest monthly report from Florida Atlantic University and Florida International University.

“All in all, these are good signs for the housing market,” Eli Beracha, Ph.D., director of FIU’s Hollo School of Real Estate, said in prepared remarks.

Many areas across the country are seeing premiums decline, moving toward stabilization, according to the report, which showed that eight out of the 10 most overvalued housing markets have “started to edge back down toward their long-term pricing trends, according to January data from the Top 100 U.S. Housing Markets.

The index defines a premium by the degree of overpricing in terms of a percentage difference between actual and statistically modeled home prices.

“This is good news as it signals these markets could be getting to where prices should be, slowly but surely, creating less risk for catastrophic loss in average home value,” said Ken H. Johnson, Ph.D., real estate economist in FAU’s College of Business, in prepared remarks.

“Ideally, we want to find our way back to the long-term trend for each metro area with as little pain as possible.”

Atlanta, the most overvalued market in the country, posted a 12-basis point decline in its housing premium over the past month. The second most overvalued market, Cape Coral, had a 62-basis point decline; Tampa, fourth most overvalued, had a 17-basis point decline; Palm Bay, fifth most overvalued, a 31-basis point decline; Knoxville, sixth most overvalued, had a 13-basis point decline; Lakeland, the eight most overvalued had a 23-basis point decline; Orlando, number nine, a six-basis point decline; and Charlotte, the tenth most overvalued saw a 14-basis point decline.

Only in the South Florida market did the researchers express concern as it was the only measured metro in the state where housing premiums did not decrease, instead going up by 23 basis points.

“As prices are on the upswing still in Miami and premiums aren’t showing signs of heading back to the area’s long-term pricing trend, it might be better, in terms of wealth creation, to rent and reinvest monies that would have otherwise been put into homeownership,” Johnson said in prepared remarks.

Several Florida metros also signaled that prices are stabilizing as eight out of the nine measured metros saw small declines in premiums.

The Top 100 U.S. Housing Markets, a monthly index in FAU’s Real Estate Initiative, measures housing premiums and discounts in the 100 most populated metropolitan areas in the country by looking at the difference in actual average home price in a city and comparing it to the long-term home pricing trend for the same city to calculate how overvalued or undervalued housing markets are using publicly available data from Zillow.

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