These western housing markets are ‘significantly overvalued,’ may see prices fall up to 20%, Moody’s says (2024)

As the high interest rate-induced U.S. housing slump deepens, national housing experts and economists are watching home prices dip across the country — with some regional pockets dropping much faster than others.

Predictions vary for just how deep and widespread home price declines will be leading into 2023 and beyond, but at least one national economist is forecasting national home prices to decline up to 5%. But if the nation’s economy enters a recession? That prediction bumps up to a 5% to 10% national price decline.

That’s what Moody’s Analytics chief economist Mark Zandi told Fortune, which reported Moody’s quarterly analysis on Tuesday.

According to Moody’s analysis, there are now 210 housing markets across the nation that are “significantly overvalued” — or overvalued by more than 25%. In those markets, Moody’s predicts home prices to fall 5% to 10%. If a recession hits? Home prices in those regions could take 15% to 20% hits.

“Simply put, over half of the nation’s largest regional housing markets are vulnerable to home price declines of 15% to 20%. For perspective: Peak to trough, U.S. home prices declined 27% between 2006 and 2012,” Fortune reported.

Would-be homebuyers, turned off or priced out by high mortgage rates now hovering over 5% or some days 6% amid the Federal Reserve’s battle with inflation, are now pulling out of the housing market. In turn, home sellers are adjusting for sale prices to recalibrate to falling demand.

To Rick Palacios Jr., head of research at John Burns Real Estate Consulting, double-digit price declines would be “the affordability medicine needed” for many housing markets that went haywire over the past two years.

Low mortgage rates, especially when they were below 3% in 2020, masked the impact of dramatic price increases. Now that that mask has lifted and prices have stayed high, that’s meant the difference of hundreds of dollars a month in mortgage payments for would-be homebuyers.

‘Overvalued’ housing markets in the West

Of those 210 “significantly overvalued” housing markets pinpointed in Moody’s analysis (out of about 400 regional markets), at the top is a familiar metro in the West that’s made plenty of headlines for its wild, skyrocketing home prices amid the pandemic housing frenzy that’s since fizzled into a hangover: Boise.

Last month,Boise led the nation with the largest share of sellers slashing their prices, with nearly 70% of homes for sale seeing price drops in July. Next came Denver, with 58%. Salt Lake City ranked No. 3, with 56.4%.

Idaho

• Boise, Idaho is overvalued by an estimated 76.9%, according to the Fortune/Moody’s analysis, and is at risk of home price declines of up to 20%.
• Coeur d’Alene, another Idaho city that exploded as a pandemic housing hot spot, is also deep red on Fortune’s map, overvalued by an estimated 62.6%.
• Idaho Falls, Pocatello and Twin Falls areas in Idaho are also shaded red, estimated to be overvalued by over 57%, 59% and 52%, respectively.

Arizona

• Phoenix — what’s been called the “poster child” for the pandemic housing boom effect and one of the first areas to see home prices fall as the housing market corrects — is overvalued by over 57%, according to Moody’s.
• Flagstaff is another metro washed in red, estimated to be overvalued by over 65%.
• The Lake Havasu City-Kingman metro area is estimated to be overvalued by over 60%.
• Prescott Valley is estimated to be overvalued by over 51%.
• Tucson is estimated to be overvalued by over 34%.

Utah

• The Ogden-Clearfield metro area in Utah is the most “overvalued” market in the state, according to Moody’s, estimating the area is overvalued by over 50%.
• Logan comes next, estimated to be overvalued by almost 44%.
• Salt Lake City is estimated to be overvalued by over 28%.
• St. George, in Utah’s southernmost corner, is estimated to be overvalued by over 27%.
• The Provo-Orem metro area is estimated to be the least overvalued, at over 17%.