59 Housing correction coming to Alabama: See the state’s most overvalued real estate markets

By Dennis Pillion

The days of skyrocketing housing prices may be coming to an end.

The economic research firm Moody’s Analytics released a report last week stating that the U.S. housing market is “more overvalued than ever,” and that it expects U.S. home sales will “flatline” next year after years of home prices increasing faster than wages.

“Home prices have outpaced income growth over the past few years leading to record levels of overvaluation across the country,” said Cris deRitis, Deputy Chief Economist at Moody’s Analytics. “With rising mortgage rates pricing millions of would-be buyers out of the market, home prices are expected to fall nationally by 5 to 10 percent.”

The firm analyzed home prices in real estate markets across the country, comparing them to a “fundamental value” that is calculated using real estate and income trends for the given area. Markets where actual housing prices exceed the estimated fundamental value of the home by more than 20% are considered to be “extremely overvalued.”

In Alabama, Moody’s finds that 7 of the 12 housing markets studied are extremely overvalued, but deRitis said it could be worse.

“Overvaluation in Alabama isn’t as high as other parts of the country which should lead to a more modest correction, ” deRitis said via email. “Some areas that experienced faster growth such as Huntsville and Gadsden may be more vulnerable to price declines.”

Huntsville was Alabama’s most overvalued housing market, with the firm rating homes in the Rocket City as 37.12% overvalued compared to the area’s income levels.

But if you think that’s high, don’t look up. Moody’s estimated that the Nashville-Davidson-Murfreesboro-Franklin, Tenn. market is 63.1% overvalued, the second most overvalued major metro area in the nation behind Boise, Idaho

In Alabama, Gadsden was the second most overvalued at 31.59%, followed by the Daphne-Foley-Fairhope area at 28.53%.

The Montgomery metro area actually rated as being 2.48% undervalued, one of the few metro areas in the country to receive that distinction.

The full list of Alabama metros overvaluation is as follows (Source: Moody’s Analytics):

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