The Buying Boom Is Slowing, and Experts Say a Housing Correction Could Follow

A largely unpredictable post-pandemic housing market is cooling, and a drop in demand means the beginning of a housing correction, according to Moody's Analytics chief economist Mark Zandi. New home sales in April and May dropped 19% to their lowest level since 2020, and sellers are responding. Roughly 19% of all home listings experienced a price reduction in the last month, causing home price growth to plateau after consecutive gains during the pandemic.

The Fed’s inflation control measures are working, but in order to extinguish another heated housing bubble before it even begins, it will also want home construction to slow across the U.S. As waning inventory and surging demand put pressure on overvalued housing markets, prices will continue to fall over the coming year, Fortune reports.

Among the nation's largest 392 housing markets, 96% have home prices that are "overvalued" relative to what local incomes can support. That's the finding from Moody's proprietary analysis of U.S. housing markets. Among those 392 markets, 149 are overvalued by at least 25%. That includes Boise, where home prices are 73% above what Moody's says economic fundamentals support.

Zandi says the extremely "overvalued" housing markets like Boise and Phoenix are at the highest risk of falling home prices over the coming year. So are numerous markets throughout the Mountain West, Southwest, old South, Carolinas, Florida, and Texas.

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