Top Overvalued U.S. Housing Markets

Back then, the typical homeowner was paying 22% of monthly per-capita income on mortgage payments, while the typical renter was paying 33% of the same metric to the landlord. For many households, making the switch from renters to homeowners made great financial sense.

Flash forward to the end of 2022, and it was a different story for both groups of households. While the share of monthly per-capita incomes paid by tenants to landlords rose just a few percentage points to 36%, for homeowners the amounts paid on principal and interest soared to 37%. This was in large part due to mortgage rates jumping to over 7% before settling around the mid-6% level. Per-capita incomes are estimated by dividing total population by personal incomes using data from the Census Bureau and the Bureau of Economic Analysis.

Because these are national median figures, these same ratios will vary a bit between markets, with some homeowners in California paying up to 67% for principal and interest alone, and renters paying up to 58%. Consequently, if the oft-repeated rule of thumb is to avoid paying more than 30% of a household’s gross income on housing, then a number of metropolitan statistical areas are also overvalued based on local per-capita earnings.

Although it’s no surprise to see multiple regions in pricey California leading our list of the country’s most overvalued housing markets, also on the list are "Zoom towns" such as Boise, Greeley and even Salt Lake City, Utah. A Zoom town is an area which has experienced a large increase in remote workers over a short period of time.

If you’re a renter, while several MSAs in California remain on the most overvalued list, joining them are three markets in Florida as well as New York City, long one of the country’s priciest markets for renters.

Our data for these rankings are primarily sourced from the U.S. News Housing Market Index, an interactive platform providing a data-driven overview of the housing market nationwide. See the U.S. News Housing Market Index.

According to the Department of Housing and Urban Development, households spending more than 30% of their gross monthly incomes on a place to live are "cost burdened," since that leaves less room for spending on other necessities such as food, clothing, transportation and health insurance. While that 30% rule may not necessarily apply to households with higher incomes and lower debt, it’s still a useful barometer to rank just how expensive it is to live in some of the country’s priciest housing markets

For the purposes of this ranking, we chose November 2022, since that’s the most recent month for which we have comprehensive data from the U.S. News Housing Market Index. However, we encourage visitors investigating various housing markets to check back with the online interface for updates at least once per month. See the methodology here.

Overvalued Homes for Sale

If you’re in the market to purchase a home, the following four MSAs (all in California) are by far the most overvalued, as they require a payment-to-income ratio of over 60%, or twice the maximum rate recommended by HUD:

The top 20 most overvalued housing markets include not just high-priced MSAs in California, but also Idaho, Colorado and Utah. While some MSAs such as Myrtle Beach, South Carolina, and Las Vegas have payment-to-income ratios just over 40%, that’s still 10 percentage points over the recommended maximum. Notably, even the U.S. median payment ratio of 36.6% is too high, suggesting that home prices have further to fall before the market can recover.

The Most Overvalued MSA to Buy a Home

Despite the San Francisco-Oakland-Hayward MSA being ranked as the country’s most overvalued market, it does have some market strengths including low foreclosures, few mortgage delinquencies and a low vacancy rate for rental homes. However, those strengths are more than balanced by weaknesses including its high housing-to-income ratios and low builder sentiment.

Here’s a deeper look at the various data points regularly tracked by the Housing Market Interface for this MSA:

The overall Housing Market Index of 49.8 for the San Francisco MSA fell 8% year over year through November and comprises three subindexes on a point scale of 1-100, with 100 being the healthiest.

While the median price of a home here fell by 11.1% year over year, it still tips the national scales at $1.4 million. Although the price-to-income ratio at the end of 2021 stood at .49, as mortgage rates began to rise in 2022, by November the ratio had jumped to nearly .67.

At the moment, there are few signs of financial distress by homeowners, most of whom continue to enjoy mortgage rates below 4% to 5%. The U.S. News Housing Media Analysis tool interprets the sentiment from over 500 U.S. housing news articles each month. Filters allow you to tailor media results to your region, time period, source or keyword.

In the case of the San Francisco MSA for the month of January, besides places including "San Francisco" and "California," the most popular keywords include "renting," "real estate pricing," "affordable housing" and "apartment."

In terms of place popularity keywords for January, San Francisco is followed by "United States," "Los Angeles," "San Jose" and "New York."

Each month, there is an overwhelming amount of housing market news. Another U.S. News tool helps to understand and synthesize large volumes of housing-related media. This system then translates language into “sentiment” at the end of each business week.

This information is aggregated into a consolidated, interactive form that you can easily access and understand. Sentiment scores range from -1 to +1, with articles expressing the most negative sentiment earning a -1 and the articles expressing the most positive sentiment earning a +1. The 5,000 articles in the image above that mention San Francisco had an average sentiment of -0.04 through January 20, which is more negative than the overall article average of -0.00. However, since mid-January, sentiment in the MSA is trending upward.