Watch for "overvalued" housing markets as house price growth begins to slow, says CoreLogic
Last week, the average fixed-rate mortgage for 30 years reached 4.67% - up from 3.11% in December. This is a bigger issue than it may seem at first. If a borrower took out a $ 400,000 mortgage at 3.11%, he would have owed $ 1,710 a month during the 30-year loan. At a 4.67% mortgage rate, this monthly payment rises to $ 2,067.
Not only are mortgage rates higher for homebuyers, it also means that some borrowers - who have to meet a strict debt-to-income ratio of lenders - will lose their mortgage eligibility.
The economic shock of mortgage rates is causing some in the real estate industry to predict that the hot housing market will finally lose some steam.
The real estate research company - CoreLogic, which is ranked 952nd on the Fortune 1000 list, said that the growth in apartment prices is going to slow down - a lot. In its latest survey, U.S. house prices jumped 19.2 percent between January 2021 and January 2022. But over the next 12 months, CoreLogic says, house prices will rise by only 5 percent.
Here's another reason CoreLogic sees housing growth slowing: Over the past year, U.S. house prices have jumped five times faster than U.S. income growth. It just can not last much longer.
The real estate company has calculated a market risk assessment for about 400 metropolitan statistical areas. CoreLogic aims to find out if local income levels can support apartment prices. The result? CoreLogic estimates that 65% of US regional housing markets are “overvalued”. This includes statistical areas of major metropolitan areas such as New York, Miami, Seattle, Las Vegas and Dallas. Every major market in Arizona, Florida, Texas and Nevada meets CoreLogic's definition of "overvalued". Meanwhile, CoreLogic says only 26% of U.S. housing markets are "normal" and only 9% are "low value."
"With strong apartment price growth since the onset of the epidemic, many markets can now be overestimated, especially when comparing price growth to the growth rate of domestic income," Selma Hep, CoreLogic's chief economist, told Fortune.
But the fact that house prices in the US are "overvalued" does not mean that house prices are about to fall.
Indeed, every forecast model tested by Fortune still predicts U.S. house prices will rise over the coming year. This includes models manufactured by the Association of Mortgage Bankers, Bank of America, Fannie Mae and Zillow.
What's going on? Industry insiders believe rising mortgage rates will help curb the unsustainable rates of house price growth we have seen over the past year. However, many believe that the combination of limited supply and the demographic wave of first-millennial home buyers will continue to push prices upward, albeit at a slower growth rate.