Data from analytics firm CoreLogic shows 67.9 percent of U.S. regional housing markets were overvalued as of the latest available data from March, meaning incomes in those markets can no longer support home prices.

For weeks now, housing experts and economists have debated whether or not the country is in a housing bubble.

Home prices and mortgage rates have surged, while wages have trailed behind. Within the last year alone, home price growth, which has reached 20.6 percent, has become four times greater than income growth (which is a mere 4.8 percent). That means underlying economic forces in the market, such as incomes, are no longer able to support home prices in many places.

Mark Zandi, a Moody’s Analytics chief economist, told Fortune recently that a housing bubble would require both speculation-driven price growth and overvaluation — and overvaluation has now impacted over half of all U.S. housing markets, even though speculation-driven price growth isn’t at play in the U.S. (this time around).

It is reported that 67.9 percent of U.S. regional housing markets are now “overvalued,” as of the latest available data from March, meaning that incomes in those markets are no longer able to support home prices, according to an analysis provided to Fortune by real estate data firm CoreLogic.

Furthermore, CoreLogic’s market risk assessment of 400 metropolitan statistical areas shows that less than one-quarter (24.5 percent) of markets are “normal,” and only 7.6 percent are “undervalued.”

With mortgage rates now up substantially since the beginning of 2022, and homebuyers showing their inability to keep up with both home prices and those interest rates — as reflected in consistently declining new home sales and existing-home sales — overvalued housing markets may soon face a reckoning.

The pandemic-fueled housing frenzy finally seems to have come to an end, with inventory continuing to rise and more and more sellers resorting to price cuts, according to a recent report from Redfin.

Even though CoreLogic’s forecasts show home prices rising 5.9 percent within the next year, the company told Fortune that some of those overvalued markets do face a higher risk of prices dropping, because underlying market forces can’t support them.

The data analytics company analyzed a number of factors in regional markets in order to predict the likelihood of home prices dropping in those areas including income growth projections, unemployment forecasts, consumer confidence, debt-to-income ratios, affordability, mortgage rates and amount of inventory. CoreLogic then categorized those housing markets into the following price drop risk categories: “very high” (more than 70 percent chance of price drop), “high” (50-70 percent chance), “medium” (40-50 percent chance), “low” (20-40 percent chance) and “very low” (0-20 percent chance).

CoreLogic determined that just four overvalued markets out of 392 markets measured had a “very high” likelihood of facing a price drop: Bend, Oregon; Prescott, Arizona; Lake Havasu City, Arizona; and Bridgeport, Connecticut.

Twenty-two markets analyzed have a “high” chance of facing a price drop and 44 markets fell into the “medium” risk category.

However, other analysts think even more markets across the U.S. are overvalued right now — Moody’s Analytics, for instance, at the beginning of May said 96 percent of the country’s largest 392 markets are overvalued compared to incomes in those markets. The company added that 149 of those overvalued markets are at least 25 percent overvalued.

Zandi ultimately anticipates home price growth in the U.S. to tank from 20 percent to 0 percent on an annual basis. Furthermore, he told Fortune that the country’s most overvalued markets could see home price drops of 5 to 10 percent in the next year.

The following overpriced markets are most likely to see a drop in home prices in the next year, according to Zandi: Boise, Idaho; Colorado Springs, Colorado; Las Vegas, Nevada; Coeur d’Alene, Idaho; Tampa, Florida; Atlanta, Georgia; Fort Collins, Colorado; Sherman, Texas; Jacksonville, Florida; Idaho Falls, Idaho; Lakeland, Florida; Greeley, Colorado; Longview, Washington; Charleston, South Carolina; Albany, New York; Denver, Colorado; Clarksville, Tennessee; Greensboro, North Carolina; and Charlotte, North Carolina.

Email Lillian Dickerson

CoreLogic | Redfin
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