The housing market has surged in the past two years. On average, home prices have risen 20% year over year most months, according to the S&P Case-Shiller real estate report. In some markets, particularly those where prices have risen by more, home prices will reset downward.
A primary reason for the rise in home prices has been extremely low mortgage rates. These dropped below 3% for a 30-year fixed interest rate loan. Those days are over, however. Mortgages rates have risen above 5%, marking homes less affordable.
Some medium-sized cities have had a huge influx of residents, at least when relative to their populations. People have relocated from expensive coastal cities like San Francisco and New York to cities like Boise and Nashville.
Tens of thousands of people have been able to move to cities where they prefer to live because of the new “work from home” culture, driven by the COVID-19 pandemic’s shuttering of offices.
While real estate prices may not be in a bubble in most cities, some have bubble characteristics. There is no better example than Boise. The FAU Real Estate Initiative recently named Boise the most overvalued market of the 100 considered by the study. The premium over what housing prices should be in Boise, according to the study, is 70%. If that is right, Boise is falling toward a huge drop in home prices.
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Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.