Study: Homes overvalued in Southwest Florida by nearly 35%

Laura Layden
Fort Myers News-Press

It's no secret home prices have been on the rise in markets across Florida.

In some markets, such as Naples-Fort Myers, prices have increased so much that they could soon reach their turning point, flatten, then fall.

Homes under construction are seen in a new development off of Corkscrew Road recently.

That's according to a study by two Florida professors.

Earlier this year, Ken H. Johnson, an economist at Florida Atlantic University, and Eli Beracha, with Florida International University's school of real estate, launched the study to identify and rank the most overvalued markets. 

The rankings are updated monthly. They're calculated by comparing the current average prices to historical ones, expressed by a percentage. The higher the percentage increase, the more overvalued the market.

The study is national in scope.

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Four areas in Florida ranked among the Top 25 most overvalued markets in the country, as of October. Here's a look at how much buyers are overpaying by:

  • Tampa, 37.96%
  • Lakeland, 37.86%
  • Fort Myers-Naples, 34.64%
  • Melbourne, 34.13%

In Fort Myers-Naples the average home price rose to $337,891, for example, compared to an expected price of about $250,958. Back in February, homes were overvalued by only 7% in the area, compared to nearly 35% now, Johnson said.

"The premium is rising, increasing very rapidly," he said. "And that's not a good sign for the market." 

Offering a bit of good news, Johnson pointed out the premium is still nowhere near the high it hit in 2006. In Southwest Florida, it rose to almost 91% before the housing market collapsed in 2007.

London Bay’s Grandview at Bay Beach luxury high-rise is now under construction.

The professors' study is national in scope.

Five other areas in Florida made the Top 100 in the latest report: Daytona (33.44%), North Port-Sarasota (28.87%), Orlando (28.54%), Jacksonville (28.10%) and Miami-Fort Lauderdale (18.2%).

The goal of the rankings is to help consumers, lenders and real estate professionals make more informed home-buying decisions.

The study is based on data from real estate portal Zillow and other public sources. The data, which goes as far back as January 1996, includes single-family homes, townhomes, condominiums and co-ops.

Nationally, Johnson sees a pricing “crown” developing in the five most overvalued markets: Boise, Idaho, Austin, Texas, Ogden and Provo, Utah, and Phoenix, Arizona. In a nutshell, that means home values in those areas may be leveling off first, if they haven't already, in this latest run-up, he said. 

The study shows Boise's homes are priced at $502,953 on average, compared to an expected amount of $278,633 based on the area's historical trends.

Meanwhile, Honolulu, Hawaii, remains the most undervalued market in the nation, with homes selling for 1.63% less than they should.

“The danger in buying into an overvalued market is that you may have to own the home longer to realize significant financial returns,” Beracha said. “Once prices level off, reselling the property for a higher return is very difficult.”

In some metro areas, such as No. 10 Atlanta and No. 18 Dallas, prices are rising so rapidly that they're generating market premiums much greater than the last housing run-up, Johnson said.

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In other areas, including No. 64 Miami and No. 90 Los Angeles, prices are increasing much slower, producing noticeably smaller premiums than during the housing bubble that contributed to the Great Recession.

“This all suggests that some areas of the country learned a valuable lesson about prices, while others hold to the stubborn belief that housing prices grow to the sky,” Johnson said.

Houses in Verdana Village are under construction east of I-75 on Corkscrew Road in Estero.

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Denny Grimes, president of his team at Keller Williams Realty in Fort Myers, said he's read and heard other reports about overpriced markets in Florida and elsewhere, but he's not too concerned about a big housing crash or correction in Southwest Florida.

"We have an influx of buyers who are not tied to income from a job in Southwest Florida. Those types of buyers (luxury) are skewing the numbers upward," he said.

However, he acknowledged the "bread and butter homebuyer is discouraged" by the higher prices.

"Prices have hit a soft ceiling, so I don’t expect a big change in home prices in 2022, up or down," Grimes said. 

Denny Grimes, president of his team at Keller Williams Realty speaks at Marketwatch 2020 at Hertz Arena in Estero on Tuesday Feb. 25, 2020.  He was one of three keynote speakers on real estate trends.

Michael Dalby, president and CEO of the Greater Naples Chamber of Commerce, hopes that prediction rings true.

"With most home sales in Collier County being cash purchases, I don’t fear a dramatic correction. But we are concerned with rising home prices and rents making it harder and harder to recruit experienced workers, at all levels, and all professions," he said.

Based on his own research, Johnson said he's not that worried about seeing a big housing crash in Southwest Florida either, with inventory so tight, and demand so strong.

"You've got a huge inventory shortage, which will help support prices going forward, and you have really, really high expected growth."