MARKET & TRENDS: XXXXXXX MARKET & TRENDS: FALLING PRICES
An analysis of historical price-to-income ratios for home prices nationwide indicates that home prices have become overvalued, at least in relation to the historical relationship between prices and incomes. That analysis shows that actual home prices nationwide—as measured by Zillow—are 20% above what the home prices should be, based on historical price-to-income ratios. That 20% gap between actual and theoretical home prices is down from a peak of 27% in July 2022 and it’s on par with the gap in 2006, leading into the home price correction that started in late 2007 and extended through early 2012. Actual home prices ran below the expected home prices based on price-to-income ratios for several years during and after that home price correction.
The gap between actual and theoretical home prices demonstrates that home prices may be inflated, but it doesn’t necessarily mean home prices will correct sharply in the near future. Home prices may be in a bubble, but a sharp object is still needed as a catalyst to pop that bubble. In 2007 that sharp object turned out to be risky mortgages that failed at a high rate, flooding the market with distressed sales that pulled down overall home values and began a vicious cycle of foreclosures and falling home prices.
lower in 2024, most are not planning to adjust their pricing lower when purchasing at auction, an indication they aren’t expecting a dramatic home price correction along the lines of 2007 through 2012. More than half of all buyers surveyed (56%) said they expect their maximum bid at auction—relative to estimated property value—to remain the same in 2024, while another 21% expect to increase their maximum bids in 2024. Twenty-two percent expect to decrease their maximum bids in 2024. Local investors, who accounted for 78% of all buyers surveyed, are markedly more bullish on pricing than institutional investors, who accounted for just 3% of all buyers surveyed. Sixty-one percent of the local investors said
INVESTOR PRICING STILL AGGRESSIVE
Although an increasing share of local investors buying on Auction.com are expecting home prices and rents to adjust
ACTUAL HOME PRICES DIVERGE FROM FUNDAMENTAL HOME PRICES
ACTUAL HOME PRICE (ZILLOW)
FUNDAMENTAL HOME PRICE (PRICE-TO-INCOME RATIO)
ACTUAL-FUNDAMENTAL
$400K
30.0%
26.5%
20.3%
20.2%
$350K
20.0%
$300K
10.0%
$250K
$200K
0.0%
$150K
-10.0%
$100K
-20.0%
$50K
$K
-30.0%
Source: BLS, Zillow
30 | think realty magazine :: march – april 2024
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