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The 3 most 'overvalued' housing markets in the US — and what it means for those looking to buy or sell

The 3 most 'overvalued' housing markets in the US — and what it means for those looking to buy or sell
The 3 most 'overvalued' housing markets in the US — and what it means for those looking to buy or sell

Home prices in 90% of U.S. metropolitan areas are overvalued according to a new report by Fitch Ratings. In these areas, 56% of home prices were overvalued by more than 10%.

This reflects a domino effect: rents are up, which leads to robust housing demand and hence higher home valuations, per Fitch.

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The top three most overvalued housing markets are also in metro areas you’d barely (or never) expect: Memphis, Buffalo and Indianapolis.

So, what does it all mean for those who are looking to buy or sell?

Looking at the overvalued areas

At first glance, the urban triumvirate Fitch identifies may seem strange. Buffalo’s claims to fame are chicken wings, blizzards and a football team that’s never won a Super Bowl despite four consecutive tries. In Memphis, Elvis left the building long ago, although it’s still a mecca for aspiring musicians. And in between funkier midwest locales Chicago and Cleveland, Indianapolis is regarded as more of a pit stop.

If these three overvalued areas collectively raise the question “why?” — the actual prices might give a clue. Homes in these cities are relatively cheap, and cheap property is in high demand. “Overvalued” may sound financially ominous, but it isn’t quite the same as out of reach.

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Here’s an overhead view: the median national home price, according to Redfin, is $439,716 as of May. By comparison, the median home price in Memphis is $190,000, in Buffalo it’s 209,250 and in Indianapolis it’s $250,000.

A topsy-turvy housing market

The state of overvaluation brings with it pros and cons, some not so obvious. On the one hand, as housing values go up, so do sales prices. That could leave you in luck if you’re in one of the most overvalued markets and want to put your house up for sale.

Trouble is, any new digs you purchase must be affordable, even if the property has better value. This can be a challenge in part due to elevated mortgage rates, which currently hover around the 7% mark.

If home values are based on historical prices, perhaps it’s time to reconsider the past in light of the present — including the forces of inflation. For example, if your home doubled in price between 1996 and today, then guess what? The buying power of $100 was also cut in half. And no matter how you slice it, a new home is an increasingly expensive proposition.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.