For those of you who are unfamiliar with me, I am a real estate agent in California. I've worked in this sector for over 20 years and own several real estate consulting and social media companies. I have been in the top 1% of the real estate world.
A few days ago, I made a YouTube video that showed the map of the US and the overvalued market areas.
Let’s dive deeper into that.
Moody’s dropped an article saying that they think those overvalued areas are the markets that are most likely to drop in value at the end of this year or early next year.
I thought it was a great map, but I feel like Moody’s is downgrading the real estate market.
I also presume they are the only ones out there who feel this way, based on everything I've read, including CoreLogic and Black Knight. However, of all the companies, Moody's is the most pessimistic about the real estate market. I'm not sure why, but I'll offer you my thoughts in this post.
Some current events
So, the Fed is raising the rates to about 0.5%. Let’s look at this article by Fortune, and compare what two different analytics companies have to say about how recent developments affect the housing market.
The article’s title is “We’re in a historically overvalued housing market, and these cities could see home prices drop 10%”
I love how Fortune starts this article: “A housing market slump looked all but assured two years ago.”
It is reminiscent of two years ago, in 2020, when the pandemic started. Remember during the start of the pandemic when everyone was freaking out and saying the market was going to crash? We had no idea what was going to happen, and everyone was wrong? Well, everyone except for a few others, like me and Keeping Current Matters.
We predicted back then that all of the evidence pointed to a fast rebound and that this would be the most incredible year [for real estate]. And everyone told us we were incorrect.
Something similar is happening this time.
It is important to note that Moody’s Analytics is more on the financial investment side.
According to Fortune, “At this point, Zandi doesn't foresee a national home price correction. However, he does believe some of the nation's most overpriced housing markets could see home prices decline up to 10% over the coming year.”
“Of the 392 metropolitan statistical areas it looked at, 96% are "overvalued." Among those 392 markets, 149 are overvalued by at least 25%. The most overvalued being Boise, where home prices are 73% above what fundamentals would support,” Fortune continues.
If you look at the article, they presented a map showing the areas with overvalued and undervalued housing markets. The darker areas are overvalued, and the lighter, yellow areas are considered “safe.”
Boise is the darkest area, with about 73% overvaluation of housing. I’m in California, and according to the map, it looks like the housing market here is safe. But as you get into Florida, the map starts to get more purple.
The areas that are super overvalued are the first markets to be hit as soon as the market starts to slow down.
Looking at this, you might be able to understand why analytics companies like Moody’s would think “if it turns around, these areas could go down fast - maybe up to 10%.”
“According to Moody’s Analytics’ analysis, Phoenix and Charlotte are overvalued by 46% and 33%, respectively,” Fortune reports.
That’s where everybody’s moving into. As I talked about last time, according to www.Redfin.com, people from Seattle and LA are moving into Phoenix fast. So, Phoenix is growing, and they are getting a lot of people coming in.
Now let’s take a look at what CoreLogic says.
According to Fortune, “CoreLogic, a real estate research company based in California, provided an analysis to Fortune last month that found 65% of regional housing markets are overpriced.”
Now, take note. CoreLogic specializes in real estate analytics.
Since I am a real estate agent, if I’m going to go with one that I believe in more, I’m probably going to stick with CoreLogic. In the same way when you go to a general practitioner versus a specialist in the hospital, and depending on your symptoms, you’ll probably stick to what the doctor specializes in your case more.
Am I saying Moody’s is wrong? No. Moody’s and CoreLogic are saying the same thing: a majority of regional housing markets are overvalued.
However, there are a few peculiarities related to real estate that CoreLogic considers that Moody's may have overlooked because CoreLogic works in real estate. So, when it comes to real estate data, I trust CoreLogic over Moody's.
“While CoreLogic and Moody's Analytics agree the housing market is overvalued, CoreLogic isn't quite as bearish. The real estate research firm says only 3% of housing markets have an "elevated" or "high" chance of seeing home price declines over the coming year,” according to Fortune’s article.
See the difference here? Moody’s and CoreLogic look at the same data but come up with significantly different forecasts.
So, does that mean one is right and the other is wrong? Not really.
I love the disclosure Fortune puts in this article: “As Fortune has previously reported, it may be wise to take all housing forecasts with a grain of salt. After all, when the COVID-19 recession struck in spring 2020, both Zillow and CoreLogic published housing forecast models predicting that U.S. home prices would fall by Spring 2021. It didn't happen. Instead, the housing market boomed.”
Take every news about the housing market crash, and a recession coming, with a grain of salt. Try to analyze why different companies commenting on the same issue can have very different opinions, stances, or predictions.
Look at the data, compare as many statistics as possible, and try to come up with an informed analysis of your own.
We’ve been doing this for a while now, and we’ve called it pretty well over the last few years.
Lastly, based on the graph sent by Keeping Current Matters, from seven companies’ predictions, the average home prices forecast for 2022 is 6.7%. That’s the percentage we’re projected to be above that same time for 12 months from January to December 2022.
And that’s important to note because a lot of corporations are going to change over the next few months.
I’m not saying this is definite, because who knows? If the interest rates go up dramatically, it’s going to change. Right now, where we are at, with the interest rates being around 5-6%, that’s what we’re going to see.