Overvalued or undervalued- homes edition

According to researchers at Florida Atlantic University these cities are the top ten over valued cities in the US.

  1. Boise, Idaho – 80.64%
  2. Austin, Texas – 50.72%
  3. Ogden, Utah – 49.70%
  4. Provo, Utah – 46.16%
  5. Detroit, Mich. – 45.57%
  6. Spokane, Wash. – 45.21%
  7. Salt Lake City, Utah – 42.41%
  8. Phoenix, Ariz. – 42.31%
  9. Las Vegas, Nev. – 41.88%
  10. Stockton, Calif. – 38.50%

We’ll get to their methodology in a minute, but the first thing an aspiring realtor is taught in real estate school is that buyers and sellers determine the value of a home. If more buyers want to buy a home in Boise than sellers are willing to give them up, then prices go up. It’s not an overvaluation. It simply is the market signaling that Boise’s the place to be.

The methodology used for this report is the spread in the property values in these cities, as they diverge from a calculated long term projection of the property prices. Here’s how they report their methodology.

Comparing values to historical trends is interesting in the sense of: Wow, Utah and the Non-Costal West are really becoming popular. This maybe true because of the new work from home arrangements, as inferred in the article. It could be true as a response to wanting more time in the great outdoors after being confined during Covid. The numbers can even get topsy turvey as percentages of low values are easy to bolster. (80% of a low number is still a low number.)

The appearance of Detroit and Stockton on the list is certainly a welcome surprise. That these two cities are outpacing their historical price increases indicates they are fairing much better than they have in the past. This isn’t an over-valuing of real estate. It is a signal that, hey- these communities are pulling together and people want to live there.

Similarly, it may not be wise to think of Virginia Beach as a bargain. The long term trend amongst employers appears to be to allow virtual work. The highest priced areas with the least family friendly infrastructure are going to suffer from this arrangement. A downward decline in the price of Virginia Beach real estate could very well just be starting.

Historical price trends are very one-dimensional. Real estate is a multifaceted product. Its pricing can provide all sorts of information through a more complex model. I’d say the top five influences on value (in no particular order) are 1. crime 2. proximity to jobs 3. schools 4. parks and environment 5. transportation.