Most metropolitan areas are overvalued: Fitch

Most metropolitan areas - 85% - were overvalued in the third quarter of 2024, a Fitch Ratings report finds, specifically pointing to the inflating of prices in cities like Buffalo, NY and Rochester, NY. 

According to the credit rating agency, 11.1% of home prices were overvalued nationally in the third quarter of 2024, marking a 50 basis point decrease from the previous quarter.

In addition to that, consumers are seen as likely to face a bumpy ride under the Trump administration, with prices on goods and services, including homes, expected to rise, a report says.

Fitch Ratings forecasts home prices will rise by 3 to 4% in 2025, while inflation will also likely grow, buoyed by stronger-than-expected consumer spending and planned tariffs.

The administration's immigration and trade policies are also likely to put pressure on costs for the construction industry, something that will be passed on to consumers looking to buy a newly constructed home, the credit rating agency's report said.

Stricter immigration policies could reduce workforce availability in the construction industry, leading to project delays and higher costs. At the same time, potential tariffs on building materials may discourage new housing developments and limit supply.

Overall, this could worsen housing affordability, an issue the president has expressed a desire to address.

Reactions from stakeholders in the homebuilding industry have been mixed on how policy changes will affect home construction and costs. 

Some argue that while tariffs may create short-term pressure on housing affordability, other factors, such as changes to local regulations, could mitigate the impact.

The projected home price growth will follow a trend kicked off during the COVID era, which saw properties grow by more than 16% in some areas in 2021. 

While the pace of price growth has notably slowed, it continues to hinder borrowers' ability to enter homeownership.

The Northeast saw home prices grow by 6.3% from Sept. 2023 to Sept. 2024, while the South, West and Midwest housing markets realized moderate increases, at 2.7%, 3.3% and 5%, respectively, the report said.