Looking for a real estate property to purchase but don’t know where to invest? It’s not a rare thought when in comes to real estate investing. Real estate investing is about location, some are attractive to invest in and others, not so much. For example, the overvalued housing markets in the major cities across the United States.
Overvalued housing markets are primarily caused by demand and supply. In most overpopulated cities, the demand and supply rule reaches a stagnating point. Big cities will always attract tourism, workforce and students. How do you deal with the influx of demand for real estate properties normally? By building more houses and having more options for people to invest their money. But in overpopulated cities, at one point or another, there isn’t enough room to build more. This shortage of supply creates an increasing demand which gives the suppliers power to control the market and hike up the prices resulting in overvalued housing markets.
An unbalanced growth between housing market prices and income is another driving factor for overvalued housing markets. The success of the real estate market in attracting potential investors on a regular basis has resulted in prices of properties going up. During 2013 to 2015, the property prices in the United States have gone up by an average of 12%; while income has only gone up by 6% during the same time period. Property prices are growing double the rate of personal income, which is concerning for current and potential investors and home-buyers.
There are overvalued housing markets are all over the United States, from the East to West coast. The following housing markets are the most attractive ones to investors for their high return in terms of rent and profit from sale, but their overvalued prices present an obstacle.
8 Most Overvalued Housing Markets
The overvalued housing market in Texas comes as no surprise with the state’s economic fortunes continuing to rise due to their oil industry, among other things. This made Austin a favorable place for investment property buyers, with property prices being overpriced by 19% since 2015.
Las Vegas, Nevada
Due to its popularity among tourists, it is increasingly noticeable that Las Vegas property owners are opting not to sell their properties. Instead, they’re holding on to them for Airbnb purposes to maximize profits. This causes a shortage of supply in properties that has resulted in a 14% increase in housing prices in Las Vegas.
Charleston, South Carolina
In 2015, Charleston ranked third in the most overvalued markets because of an unprecedented 13% increase in housing prices. It is easy to see how Charleston has become one of the most overvalued housing markets on the Eastern coast due to its historical significance and tourism.
Housing prices in Miami have gone up dramatically due to foreign investment in the properties for various purposes. Foreign investors paid over the odds for those properties causing a shortage of supply. Overvalued housing markets in Miami are valued at 16% increase since 2015.
The main issue with Washington D.C. is its increasing population, which has exceeded the housing construction and supply. The demand for properties in D.C. is at an all-time high. Washington D.C. is witnessing a 4% annual increase in home values. In the last 20 years, the housing prices have gone up by 60%.
With the price of the average family home ranging from $250,000 compared to $200,000 in 2015 , it is not hard to understand why residents of Nashville are frustrated at the overvalued housing markets in their city. This can be partially blamed on the rise of the hotel industry in Nashville, which has hiked up prices of houses and land ownership by 12.5% compared to 2015.
Los Angeles, California
The city that should probably top every overvalued list, Los Angeles central zone has an average family home price equaling $600,000! The numbers are baffling considering that a person’s average salary can’t possible cover the costs. Los Angeles residents are finding it hard to sustain their living situations, forcing them to leave the city in search for normality. Overvalued housing markets have reached an increase rate of 18% in value. Staggering.
New York City
We all saw this one coming, the Big Apple being on this list is no surprise. New York is one of the most populated cities in the US and home to most multinational companies. The overpriced housing issue in New York is not restricted to purchases, but people are also finding it extremely expensive to afford the rental prices. New York’s real estate market is overvalued by a shocking rate of 25%. Supply is non-existent and demand is ever rising for NYC.
The US housing market in these major cities is for sure overpriced; this can be linked directly to the movement of people to these areas and overpopulation. For new investors who are on a limited budget, investing in these locations might not be the best idea unless you are comfortable paying off a $500,000 loan for years to come. Investing in undervalued markets like Detroit, Orlando and Atlanta would be the better option to reap the rewards of your investment as quickly as possible. Overvalued housing rates are not stable, numbers can fluctuate if some factors witness a sudden change, but for now these locations are pricing most investors out of contention to purchase properties.