House prices are the most overvalued in Idaho, but the most undervalued in Maryland, according to insights from market research firm Moody’s.
Average house prices across the US are currently 15.7 percent above their fundamental value, according to the Moody’s model, which takes into account construction costs and where home prices stand relative to typical state incomes.
Moody’s classifies ‘overvalued’ as when house prices exceed their fundamental value by 10 percent.
The median home price in Idaho is $467,000 – according to data from real estate company Redfin cited by Business Insider – which Moody’s calculates as overvalued by 41.87 percent.
Meanwhile the average home in Maryland costs $410,000 – which Moody’s classifies is undervalued by -9.17 percent.
House prices are the most overvalued in Idaho , but most undervalued in Maryland , according to insights from market research firm Moody’s
The model looks at ‘the long term relationship between house prices and the drivers of housing demand,’ Moody’s economist Matthew Walsh told DailyMail.com. ‘We determine those drivers of demand by looking at income per capita, household formation and the cost of construction where possible.’
Moody’s then constructs a ‘fundamental value’ of housing, he explained, which it uses to compare to the actual observed house prices in the area – providing the measure of how overvalued or undervalued those places are.
Although home costs in California are high – at an average of $789,000 according to Redfin – Moody’s classifies property in the state as being undervalued by -1.81 percent.
Real estate in New York is also undervalued, according to Moody’s, by -1.65 percent, and homes in Illinois are undervalued by -0.78 percent.
Moody’s classifies the typical home in Alaska, which costs $362,000 per Redfin, as undervalued by 2.37 percent.
Following Idaho, home prices in Tennessee are the second most overvalued in the country at 40.81 percent above their ‘fundamental value.’
Property in North Carolina, which costs $363,000 on average, is overvalued by 37.66 percent, while homes in South Carolina, which cost $370,800 on average, are overvalued by 37.33 percent, according to the Moody’s model.
The state which ranks as the fifth most overvalued is Georgia, where the median home price is $367,400. Moody’s calculates this as overvalued by 32.92 percent.
House prices are most overvalued in Idaho, according to the study (Pictured: Boise, Idaho)
Property is most undervalued in Maryland, according to Moody’s (Pictured: Baltimore, Maryland)
It comes as soaring mortgage rates and low inventory has caused home prices to rocket across the US.
The average 30-year mortgage deal has gone up to 7.63 percent, according to latest data from government-backed lender Freddie Mac.
This means that Americans now need to earn around $115,000 a year to be able to afford an average priced home – the highest amount on record.
However Morgan Stanley analysts have predicted that house prices could drop by as much as 5 percent by the end of 2024 if record high mortgage rates nearing 8 percent are sustained.
In a research note published earlier this month, the housing analysts suggested high rates could cause house prices to remain flat or increase slightly by the end of this year, before eventually dropping by 5 percent next year.
That is because the high rates would cause both demand and supply to drop in the short term, but the low demand would outlast the low inventory in the longer term.
‘In the short term, we believe that the impact from renewed decreases in the supply of homes available for sale is going to have a greater impact on home prices than any decrease in demand,’ read the report.
‘This dynamic will lead home prices to finish the year between our 0 percent base case and +5 percent bull case,’ it read.
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