One of the big stories of the 2024 housing market is how the housing market across the Midwest and Northeast continues to appreciate, while other parts of the country like the South and Mountain West slip into a downturn. This counter-cyclical trend is explained by the inventory figures in the different regions of America, with the Northeast and Midwest still facing a persistent shortage of homes for sales.
Specifically – you can see that there are 225,000 homes for sale on the market across the entire Northeast and Midwest combined as of July 2024. This figure is down approximately 50% from pre-pandemic norms and showing little signs of improving over the last several years. Meanwhile – there are 472,000 homes for sale in the South, a figure which continues to spike due to a deluge of homes for sale from builders and investors. The result is that there are now 109% more homes for sale in the South than entire Northeast/Midwest.
Counter-cyclical strength of the Midwest & Northeast
One has to wonder – how long will this situation persist for? After all, it’s somewhat counterintuitive. The South is where all the people in America move to, or want to move to. At least that’s what the news tells us. However – the housing inventory data seems to be showing a very different picture.
And this has everything to do with where we are in the housing cycle right now in America. This housing bull run started in about 2013, and peaked in 2022, lasting 9 years. We’re now in the 2nd year of the down cycle, and in the down cycle, the high-flying housing markets that were super popular in the boom cycle tend to perform worse. While the less attractive markets that people didn’t pay attention to tend to perform better.
Which is exactly why you see the Northeast and Midwest with a shortage of inventory currently. It’s very likely that 1) migration trends have started to reverse, with fewer people leaving these areas and more people moving back in, combined with 2) more affordable price points continuing to draw buyers into the market despite 7% mortgage rates.
Throw in the fact that the Midwest and Northeast don’t build many homes, and you have the recipe for the current situation. Where inventory is still constrained.
Overvaluation Rates by State in 2024: Midwest is more fairly valued than South
And one key variable that I believe is influencing these underlying trends are the home price overvaluation rates across America. Simply put – home prices in the Midwest and Northeast are much more fairly valued than the South. For instance, here’s a breakdown of the overvaluation rate in a variety of different states.
- Iowa – 14.5%
- New York – 12.9%
- Pennsylvania – 10.3%
- West Virginia – 7.4%
- Minnesota – 11.6%
- Northeast Carolina – 24.1%
- Tennessee – 29.5%
- Georgia – 30.0%
- Florida – 28.4%
- Texas – 23.7%
Immediately, you can see the contrast. Midwest/Northeast states run about 10-15% overvalued, while Southern states run 20-30% overvalued. These overvaluation figures can be accessed on Reventure App and are based on the long-term home price to income fundamentals in the market. You can see the entire US outlined on the overvaluation map below.
Lower overvaluation rates in Midwest/Northeast mean more homebuyers can qualify for mortgages
And the the real, practical implication of lower overvaluation rates in the Midwest and Northeast is this: more homebuyers can qualify for mortgages. The prices are more attainable for these buyers relative to local incomes. So more buyers are able to support the market, even in a down cycle. It’s really pretty simple.
The result is that if you’re a homebuyer or investor looking for capital preservation, stability, and a long-term inflation hedge, Midwest/Northeast real estate does that much better right now than South. Prices there likely won’t crash, and the return profile for investment properties is better.
Access data on overvaluation rate, inventory, and cap rates on Reventure App under a premium plan.
-Nick
