While housing supply might be increasing,
On average, home prices were overvalued by 11.1% across the country, increasing from 9.4% three months earlier. Over 91% of metropolitan areas in the U.S. could be considered overvalued at the end of September, up from 88% in the second quarter, Fitch's sustainable home price report said.
Rising property values are the primary factor resulting in any unsustainable pace of growth, as other economic signs showed greater stability.
The increase in the share of overpriced markets occurred, even as supply showed hints of slowly returning. But inventory still has not come close to meeting demand that would quickly swing the affordability needle.
A recent uptick in new home listings "suggests a slow move toward a more fluid market, yet the supply of homes for sale remains tight, indicating the market is unfreezing at a gradual pace," wrote report authors Iris Xie and Sean Park. Interest rates still
Among the total set of overvalued markets, 58% exceeded Fitch's benchmark by 10% or more.
Winston-Salem, North Carolina; Memphis, Tennessee, and McAllen, Texas, were deemed the most overvalued metropolitan areas in the country. Narrowed to the 50 largest cities, Memphis topped the list, followed by Buffalo, New York; Milwaukee and Indianapolis, all of which were overvalued by at least 20%.
On the other end, Fitch found only six cities with sustainable price increases: Cleveland, Denver, Los Angeles, Dallas-Fort Worth, Miami and Detroit.
Measuring home prices by state, South Carolina, where values grew 6.6%, was the lone jurisdiction overvalued by more than 20%. Colorado, North Dakota, Michigan and Louisiana were considered sustainable.
Fitch forecasts home price appreciation to slow nationally to under 3% this year, after rising 5.5% by the end of 2023. "This forecast is based on the interplay between multiple factors, such as affordability challenges and a tight supply of homes, with the latter the more dominant factor in sustaining positive home price growth," the report said.
At the same time, real estate brokerage Redfin observed the largest annual surge of new listings coming to market in the first weeks of 2024. Volumes, though, are coming off of low 2023 numbers, and greater inventory has garnered interest but not immediately turned into sales, as
Elsewhere in Fitch's analysis, research found a consistent unemployment rate and payroll growth leading to a rise in consumer confidence. The jobs data should support housing demand, Xie and Park said. Fannie Mae's recent
The report also showed the share of income needed for a monthly mortgage payment versus rent prices narrowing thanks to recent downward moves in mortgage rates. Should it continue, the trend could lead to "a more balanced dynamic between renting and buying."
