Journal Article

Home Prices Are Overvalued but Will Decline Only Gradually

Abstract: The surge in home prices since the start of the pandemic and the sharp increase in interest rates during 2022 have made purchasing a home much less affordable. Homeownership costs relative to rents suggest home prices are considerably overvalued. However, relief is unlikely in the near future: owners have an incentive to remain in their current homes until rates decrease, mitigating downward pressure on prices.

Keywords: housing prices; rental costs; monetary policy;

JEL Classification: R31; G21; E52;

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Economic Bulletin

Publication Date: 2023-02-17

Issue: February 17, 2023

Pages: 4