Home News Long Island housing market is overvalued, but it’s worse elsewhere, Moody’s says

Long Island housing market is overvalued, but it’s worse elsewhere, Moody’s says

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Long Island home prices are free from long-term fundamentals, according to analysis released this week by Moody’s Analytics. The report found that home prices in all of the more than 400 US metropolitan areas studied are overvalued relative to long-term trends.

Long Island homes were overvalued by 16.4% in the second quarter, according to the analysis. That’s below his 26% national average and the highest since Moody’s began tracking her more than 30 years ago.

Long Island was overvalued at 10%, the average for the New York metropolitan area. No metropolitan area in the country is underestimated.

The analysis is based on a comparison of the Moody’s Analytics Home Price Index to regional base home prices or the level of home prices Moody’s expects from long-term trends in regional growth and income data. Moody’s considers prices exceeding base value by 20% or more to be grossly overstated. Boise, Idaho (76.9%), Nashville, Tennessee (63.1%), and Austin, Texas (61.1%) were the most overrated.

Of the 106 metropolitan areas with populations over 750,000, Long Island was the 83rd overrated.

“Theoretically, long-term prices should follow income growth trends,” said Chris Delitis, deputy chief economist at Moody’s Analytics. “They can be faster or slower at different times. In the long run, they should move together.”

But just because house prices are higher than expected doesn’t mean Moody’s expects them to return to base value anytime soon, he said.

In Nassau County, the median sales price in July was $720,000, 32.1% higher than in July 2019, before the pandemic began. Last month, Suffolk set a record median selling price of $575,000, 38.6% higher than July 2019, according to OneKey MLS.

DeRitis said the report shouldn’t be a cause for concern for Long Island homeowners, especially those who don’t plan to sell soon. “This is a wake-up call in the sense that it resets some expectations,” he said deRitis. “We shouldn’t expect such a steep rise in house prices.”

For homeowners who plan to live in their homes for the long term, the value adjustment “should not have much of an impact at all,” Derritis said.

Homebuyers looking to purchase a starter home and then upgrade within a few years or resell an investment property for profit should be more cautious, he said. “It could be a more dangerous proposition.”

Moody’s expects US home prices to fall an average of 1% to 2% in the third quarter of 2023 compared to the same period this year. Moody’s Analytics expects prices to fall 4% to 5% by the third quarter of 2024 compared to the third quarter of this year, according to Mark Zandy, chief economist at Moody’s Analytics.

Of course, a fall in the US average could mean that prices are rising in some regions and falling in others.

The change in the market is due to the rapid rise in mortgage interest rates, making it more expensive to purchase a home. The average interest rate for a 30-year fixed mortgage was 5.66% in the week ending Thursday, according to mortgage giant Freddie Mac. A year ago it was just 2.87%. The average he peaked at 5.81% in June, which was the highest since November 2008.

“Rising mortgage rates come at a particularly vulnerable time for the housing market, as sellers are readjusting prices due to lower purchase demand, and their As a result, price growth is likely to slow.” .

Higher interest rates have reduced purchasing power, the amount a homebuyer can offer while maintaining mortgage eligibility, said Meg Smith, an associate broker at Daniel Gale Sotheby’s International Realty in Bayshore. This has eliminated some first-time homebuyers from the market.

“We don’t have a lot of property offers, but we still get them very quickly,” says Smith. “There’s still a bidding war going on, so even when the house is priced at the money, it’s still going very fast.”

Even if some buyers drop out of the market, not enough homes Available. As of the end of July, he had 7,238 homes for sale on Long Island, according to OneKey MLS. Before the pandemic, listings nearly doubled.

Margaret Burkett, a real estate agent for Douglas Elliman in the Locust Valley, said she has noticed a slowdown in the market but still thinks it’s a seller’s market.

“The overarching theme is supply and demand. We’ve had inventory shortages for a decade, and COVID has exploded them,” said Burkett. “There is nothing on the horizon that will change and create a lot of inventory. Too many people need homes and not enough.”

Moody’s analysis compares the relationship between house prices and income in specific regions. When Moody’s says a region is grossly overvalued, it means that the ratio of house price growth to income growth is well above the norm for that region. As such, metropolitan areas such as San Jose, California, which have the highest housing prices in the United States, can still be considered the least overvalued in the country.

One caveat, deRitis said, is that the pandemic may have triggered waves of migration, and the high incomes of newly arrived people may not be reflected in local income data.

Long Island home prices are free from long-term fundamentals, according to analysis released this week by Moody’s Analytics. The report found that home prices in all of the more than 400 US metropolitan areas studied are overvalued relative to long-term trends.

Long Island homes were overvalued by 16.4% in the second quarter, according to the analysis. That’s below his 26% national average and the highest since Moody’s began tracking her more than 30 years ago.

Long Island was overvalued at 10%, the average for the New York metropolitan area. No metropolitan area in the country is underestimated.

The analysis is based on a comparison of the Moody’s Analytics Home Price Index to regional base home prices or the level of home prices Moody’s expects from long-term trends in regional growth and income data. Moody’s considers prices exceeding base value by 20% or more to be grossly overstated. Boise, Idaho (76.9%), Nashville, Tennessee (63.1%), and Austin, Texas (61.1%) were the most overrated.

Of the 106 metropolitan areas with populations over 750,000, Long Island was the 83rd overrated.

“Theoretically, long-term prices should follow income growth trends,” said Chris Delitis, deputy chief economist at Moody’s Analytics. “They can be faster or slower at different times. In the long run, they should move together.”

But just because house prices are higher than expected doesn’t mean Moody’s expects them to return to base value anytime soon, he said.

In Nassau County, the median sales price in July was $720,000, 32.1% higher than in July 2019, before the pandemic began. Last month, Suffolk set a record median selling price of $575,000, 38.6% higher than July 2019, according to OneKey MLS.

DeRitis said the report shouldn’t be a cause for concern for Long Island homeowners, especially those who don’t plan to sell soon. “This is a wake-up call in the sense that it resets some expectations,” he said deRitis. “We shouldn’t expect such a steep rise in house prices.”

For homeowners who plan to live in their homes for the long term, the value adjustment “should not have much of an impact at all,” Derritis said.

Homebuyers looking to purchase a starter home and then upgrade within a few years or resell an investment property for profit should be more cautious, he said. “It could be a more dangerous proposition.”

Moody’s expects US home prices to fall an average of 1% to 2% in the third quarter of 2023 compared to the same period this year. Moody’s Analytics expects prices to fall 4% to 5% by the third quarter of 2024 compared to the third quarter of this year, according to Mark Zandy, chief economist at Moody’s Analytics.

Of course, a fall in the US average could mean that prices are rising in some regions and falling in others.

The change in the market is due to the rapid rise in mortgage interest rates, making it more expensive to purchase a home. The average interest rate for a 30-year fixed mortgage was 5.66% in the week ending Thursday, according to mortgage giant Freddie Mac. A year ago it was just 2.87%. The average he peaked at 5.81% in June, which was the highest since November 2008.

“Rising mortgage rates come at a particularly vulnerable time for the housing market, as sellers are readjusting prices due to lower purchase demand, and their As a result, price growth is likely to slow.” .

Higher interest rates have reduced purchasing power, the amount a homebuyer can offer while maintaining mortgage eligibility, said Meg Smith, an associate broker at Daniel Gale Sotheby’s International Realty in Bayshore. This has eliminated some first-time homebuyers from the market.

“We don’t have a lot of property offers, but we still get them very quickly,” says Smith. “There’s still a bidding war going on, so even when the house is priced at the money, it’s still going very fast.”

Even if some buyers drop out of the market, not enough homes Available. As of the end of July, he had 7,238 homes for sale on Long Island, according to OneKey MLS. Before the pandemic, listings nearly doubled.

Margaret Burkett, a real estate agent for Douglas Elliman in the Locust Valley, said she has noticed a slowdown in the market but still thinks it’s a seller’s market.

“The overarching theme is supply and demand. We’ve had inventory shortages for a decade, and COVID has exploded them,” said Burkett. “There is nothing on the horizon that will change and create a lot of inventory. Too many people need homes and not enough.”

Moody’s analysis compares the relationship between house prices and income in specific regions. When Moody’s says a region is grossly overvalued, it means that the ratio of house price growth to income growth is well above the norm for that region. As such, metropolitan areas such as San Jose, California, which have the highest housing prices in the United States, can still be considered the least overvalued in the country.

One caveat, deRitis said, is that the pandemic may have triggered waves of migration, and the high incomes of newly arrived people may not be reflected in local income data.

Long Island Rank

Moody’s ranked 106 metropolitan areas. From where homes are most overvalued relative to their base value to where they are least overvalued. No metropolitan area was underestimated.

1. Boise, Idaho – 76.9%

2. Nashville, Tennessee – 63.1%

3. Austin, Texas – 61.1%

4. Las Vegas, Nevada – 59.2%

5. Phoenix, Arizona – 57.5%

83. Long Island — 16.4%

102. Baltimore, Maryland – 8.2%

103. Pittsburgh, Pennsylvania – 6.5%

104. Chicago, Illinois – 3%

105. Baton Rouge, Louisiana – 1.4%

106. San Jose, CA – 1.4%

Source: Moody’s Analytics

Note: Analysis includes metropolitan areas with population greater than 750,000 in Q2 2022

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