Even as prices moderate, many US homes remain overvalued

The average home in more than half of the nation's metro areas was overvalued by more than 10% during the fourth quarter of 2024, the latest Sustainable Home Price Trends report from Fitch Ratings declared.

Nationwide, prices were 11% above where they should be, a reduction from 11.1% in the third quarter. But 85% of the nation's markets are overvalued to some extent; this is unchanged from the third quarter.

To help make its determination, Fitch used data from the S&P Cotality (the former Corelogic) Case-Shiller Index, which went to 2.9% annual price growth in February from 3.3% in January.

What's shifting the housing market

"This ongoing cooling trend reflects reduced homebuying demand, driven by high housing costs and widespread economic uncertainty," the Fitch report from Sean Park, Iris Xie and Mia Ren said. "Additionally, potential inflation from tariffs and concerns about job security and personal finances have dampened buyer enthusiasm."

The first and third most-overvalued areas are in upstate New York, the Buffalo/Niagara Falls area and Rochester, sandwiching McAllen-Edinburg-Mission, Texas.

Prices rose year-over-year through December by 6.8% in the Northeast, followed by the Midwest at 5.3%, West, 3.8%, and South, 3.2%.

However, home prices went negative in a number of markets, led by Cape Coral/Fort Myers, Florida, down 5.3%. Lake Charles, Louisiana, was down 4.8% year-over-year and Punta Gorda, Florida, 4.4% lower.

Annual price growth keeps moderating

A separate report from Homes.com found home prices increased 1.3% annually in April, the fourth consecutive month of lessening gains. The median home price of $385,000 is $5,000 above where it was in April 2024.

This compared with annual gains of 3.9% in January, 2.7% for February and 2.2% during March. Still prices have risen for 22 consecutive months.

"Moderating price pressures is a welcome relief for potential homebuyers," said Erika Ludvigsen, national director of residential analytics at Costar/Homes.com (Costar is the parent company of Homes.com).

"Meanwhile, the inventory of homes for sale has increased," Ludvigsen said in a press release. "Higher inventories combined with a slight moderation in price pressures bring good news for homebuyers, especially in several key metros in the Sun Belt region."

Home prices fell year-over-year in April in 10 markets the Homes.com report tracked, led by Ohio cities Columbus and Cincinnati, down 4.6% and 4.5% respectively. Five other markets had no change.

No Fed short-term rate cuts until 4Q25

The Fitch report noted that while the spring home purchase season is seeing an increase in inventory, it has not led to stronger home sales so far, a result of ongoing political and financial uncertainty.

"While many buyers have adjusted to mortgage rates above 6%, affordability remains a challenge," the report said. "Current trends suggest that buyers are still hesitant, weighing higher borrowing costs against an unpredictable political and economic environment."

Looking forward, Fitch reiterated its prior outlook on home price growth for it to slow to between 3% and 4% this year from 4% for 2024.

It also repeated it does not expect the Federal Open Market Committee to cut short-term rates again until the fourth quarter. This is in line with the sentiments expressed by most economists surveyed in May by Wolters Kluwer, who believe the Fed will wait until after the July meeting to act (the next FOMC meeting after that is Sept. 16 and 17).

Meanwhile, the 30-year fixed rate mortgage will end the year around 6.5%. The Mortgage Bankers Association's April forecast has the 30-year at 6.7% in the fourth quarter, up from its March prediction of 6.5%.

"Although mortgage rates have remained relatively steady, affordability remains a major concern, as real wage growth continues to stagnate, and inflation expectations rise," Fitch said.