Detroit is the most overpriced housing market in the country, but there’s not a clear reason why.
The latest Beracha and Johnson Housing Market Ranking reveals that homes in Detroit are selling at a 37% premium above the area’s long-term pricing trend. Las Vegas and Atlanta inch closely at 35% and 33.1%, respectively. Atlanta previously held the top spot.
Using the Big Radius Tool, Ken Johnson—a real estate economist and the Christie Kirkland Walker real estate chair at the University of Mississippi—said that Detroit’s population has only grown about 1% in the last decade—less than the 2.1 children per woman to maintain a replacement fertility rate—which should result in a declining or flattening in home prices, yet home prices in Detroit are steadily increasing despite a slow population growth.
“Detroit is perhaps the most puzzling metro in the country given its tepid population growth and premium score,” he says. “It is easier to understand the premium scores for Las Vegas and Atlanta given their rapid population growth.”
Johnson says he doesn’t think he has seen this much of a degree of overpricing with such little growth in population. The average home price in Detroit is $247,744—and the model shows that it should be priced at $180,798, said Johnson.
“The average income in the Detroit area is $72,129, which is more than sufficient income to support a $248,000 home price. There’s no reason to expect a crash in Detroit because their incomes support the average price, even though it’s high,” he said. “If there’s no pressure on the supply, I don’t see why prices should be going up.”
At least with Atlanta, says Johnson, the population growth is through the roof, so it does account for the increase in home prices.
Though he can’t pinpoint a reasonable explanation for what is happening in Detroit, Johnson suggested that it could have something to do with the automobile industry, the new medical technology companies moving in or “some local idiosyncratic thing going on.”
Developed by Johnson and Eli Beracha, director of the Hollo School of Real Estate at Florida International University, the Over and Under Pricing ranking uses public data from Zillow and Realtor.com®.
Using the top 100 metro’s statistically modeled prices and comparing the actual average home prices, the ranking is meant to help buyers make educated decisions when purchasing for either homeownership or investment. Back in 2021 and 2022, the index offered a stark, quantitative analysis of the pandemic boom market, and showed that certain metros were experiencing price jumps that were disconnected from fundamental economics.
“The goal of this is to give people some unbiased information—to help them make informed decisions, not make the perfect decision,” says Johnson. “We don’t have a vested interest. We just want to provide this information and try to make it as timely as possible.”
With the Case-Shiller index, people can tell whether housing is going up or down, but you can’t tell if the prices are overpriced relative to what they should be, Johnson explains.
To outpace the increase in home prices, wages need to increase, say Johnson and Beracha in a statement. Only in that scenario, they added, can housing become affordable again.
Out of 100 metros studied, 98 markets were overvalued, with current home prices in seven markets at above a 30% premium.
Notably, all nine measured metros in Florida are showing a general decline. Orlando, ranked highest at a 27.1% premium, is 19th in the ranking. This general decline in scores suggests that the state is nearing the peak of its current housing cycle, added Johnson.
In the past 12 – 14 months, all but one of the nine metros were in the report’s top 25 and now only one is in the top 20.
Recently, for over two years, the markets in Florida, Texas and Georgia were “simply on fire,” said Johnson. The most rapid appreciation was Austin, but now it is down significantly—95th on the list at a 5.8% premium.
Austin was really good at overdeveloping and is a really good buy right now, added Johnson.
Also in Texas, McAllen—82nd on the list with a 13.4% premium—is much like Detroit in the sense that its growth is hard to pinpoint, added Johnson.
“McAllen, Texas, is always hard for us to explain. Eli and I think it’s something to do with being close to the border; short- and long-term demand for housing,” he said. “But that’s another hard market that’s just hard to explain. Right now, we think it has something to do with the immigration story, but we can’t put it together.”
In the Midwest, five cities in Ohio—Cleveland, Akron, Columbus, Cincinnati and Toledo—took spots in the top 20.
This is likely due to a rise in incomes in the Midwestern states, according to the two researchers.
“Incomes are driving home prices up; there’s been a steady income growth in that part of the country, and I think that’s what’s driving those prices up in those Midwestern cities,” says Johnson. “They do seem to be geographically dispersed, but if you look closely, you can see a number of Midwestern cities right on the high end of that premium—and that’s different. That’s something new that’s happened in the last six months.”
New Orleans, one of the two underpriced metros studied, is underpriced by 8.2%.
“This score suggests that the metro might be the country’s best buy at present,” Beracha said in a statement. “However, lagging population growth could be the proximate cause of the present score.”
The other discounted metro, Urban Honolulu at -6%, catches people by surprise.
“It’s at a discount relative to a very high price,” said Johnson. “You know, diamonds go on sale, too. But right now, compared to historical pricing, Honolulu is pretty much on sale.”
Johnson does advise people not get too worried about buying in a slightly overpriced market.
“When we see homes a little overpriced, at 5% – 15%, we don’t get too worried about it; if a home is a bit underpriced, we don’t get too worried about it,” he said. “When you start seeing homes that are 25% and more overpriced, or a 25% discount, something is systematically off in that market.”
