Whether it’s for a $3 pack of gum or a $350,000 home, nobody likes to feel that they’re overpaying.
But that feeling can be hard to escape these days. Inflation is running at a 30-year high and home prices grew at a record rate in 2021. The dollar just doesn’t buy as much as it did prior to the pandemic.
One way to measure this in the housing market is the Beracha and Johnson Housing Market Rating. Developed by Ph.D. researchers at Florida Atlantic University, this housing model compares expected versus actual home prices in the top 100 US housing markets.
The difference between expected and actual prices reveals the premium or degree to which homes are theoretically over or underpriced. In December 2021, premiums ranged from -0.10% to 76.63%.
It’s important to note that expected home prices are calculated using models and historical averages. But models don’t determine home values – the market does.
But you just can’t shake the feeling, here are the 15 housing markets with the lowest premiums heading into the new year.
|Rank||City||Expected Price||Average Price||Premium|
|1||Urban Honolulu, Hawaii||$874,067||$873,237||-0.10%|
|3||New York, N.Y.||$566,506||$573,813||1.28%|
|4||Virginia Beach, Va.||$296,998||$301,273||1.44%|
|6||Baton Rouge, La.||$209,724||$219,267||4.55%|
|8||New Orleans, La.||$238,894||$254,376||6.48%|
|10||Los Angeles-Long Beach-Anaheim, Cali.||$810,034||$868,350||7.20%|
|13||Little Rock, Ark.||$168,460||$184,295||9.40%|
|14||San Francisco, Cali.||$1,255,477||$1,374,739||9.50%|
Urban Honolulu is the only housing market where actual home prices are currently below expectations – but that “discount” isn’t likely to last.
In September 2020, average home prices were 12.33% below expected prices. By December 2021, the average price increased by $151,810 and that premium was down to -0.10%.
It’s also interesting that while West Coast markets like Los Angeles, San Francisco, and Ventura get attention for being exceptionally expensive, home prices have been growing nearly as expected.
In Los Angeles, it wasn’t until the peak of the 2021 market that average home prices surpassed expectations.
This long view of the Los Angeles housing market also shows why it’s not worth fretting about buying house above “expected value” in the short term.
Homeownership is a long game with ups and downs. Folks that purchased homes in mid-2000’s have been on a wild ride. Home values plummeted in the 2008 crash, but — for homeowners that kept paying their mortgage — crawled back to even around 2016 and are now back above “expected value.”
Today’s homebuyers may be in for a similar ride, given the cyclical nature of the market. But if they stick to their budget and stay in the game, they’re likely to come out ahead in the long run.