Home price overvaluation expected to moderate by the end of this year, with the declining trend in home prices.

Reports from Fitch Ratings and Veros Real Estate Solutions forecast sharp declines in home price appreciation over the next year. The Fitch 3rd Quarter RMBS Sustainable Home Price Report estimated U.S. home prices were overvalued by 12.2% in the second quarter on a population-weighted average basis; Fitch expects overvaluation to moderate by the end of this year, with the declining trend in home prices. “Home price correction exhibits strong locality,” the report said. “Price growth is still concentrated on the East Coast, while home prices on the West Coast started to dip, and this trend has begun to spread in the Midwest. Unbalanced housing inventory and the uneven relationship of house prices and rents across the country are the primary drivers behind the diverging trends. The home price decline is likely to spread from the western to eastern U.S. if mortgage rates keep going up.” Fitch said it expects national home prices will continue experiencing corrections due to rising mortgage rates and worsening affordability in second-half 2022 and into 2023. However, housing inventory is still constrained, with 4.1 months’ supply as of August 2022, and the strong job market continues to drive rising rents into later this year, which will provide a floor to the home price decline. Meanwhile, the third quarter VeroFORECAST of 300 U.S. markets anticipates home prices will appreciate on average just 1.5% for the next 12 months, a significant drop from the 4.5% annual appreciation forecast just one quarter ago. VeroFORECAST evaluates home prices in over 300 of the nation’s largest housing markets.

Source: The Mortgage Bankers Association