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House prices are about to plummet by 20% in these pandemic boomtowns
House prices boomed across the country during the pandemic but some of these hotspots will see a dramatic drop in valuations, an expert has warned.
In particular, the housing market in the South is in a 'bubble' set to burst, according to real estate analyst Nick Gerli.
Gerli, CEO of analytics firm Reventure, predicts they could see prices drop as much as 20 percent over the next few years, with a 15 percent fall in the next year alone.
Already, recent reports have shown parts of Florida and Texas are seeing prices fall slightly - in contrast to the rest of America, where they are still edging up.
But there will be more dramatic drops in the former boomtowns in the South, according to Gerli. It is a simple matter of supply and demand.
A flood of homes for sale over recent months has come at the same time the surge in buyers that drove up prices has fallen away.
Austin, Texas has seen home prices fall significantly from their peak following the pandemic
Home price sales in San Antonio have already fallen 1.2 percent in the year to June
Such a fall alone won't be enough to make houses affordable, especially with mortgage rates still close to seven percent. But it will help, he said.
'I'm not anticipating that home buyers will look at that and be like, 'I'm going to rush in and buy,' Gerli told Business Insider.
'If someone's expecting an overnight crash where everything gets cheaper to the level they want it, that's unrealistic' he explained, since the US housing market remains at its most unaffordable in decades.
'But if someone has patience and does their due diligence, in two to three years, there will be a lot of good buying opportunities' Gerli added.
New housing inventory in the South has reached its highest ever - at 299,000 as of July, Gerli told Business Insider.
New homes are also still being added to the market with builders currently working on 8.9 months of fresh supply, he added.
When new construction soars there is usually less competition for each home.
When there are more sellers than buyers prices tend to fall and homes sell slowly and below the asking price - while inventory levels creep up.
'Demand for new homes, it's way down, way down from the pandemic and that's now intersecting with the biggest pipeline of homes for sale in the South that we've seen ever,' Gerli explained.
'That's an additional ingredient on the top, which just makes it more likely that prices fall.'
In key Southern boom towns prices have shot up between 50 and 70 percent since the pandemic, Gerli explained.
However, incomes have only risen ten to 20 percent in the same period, according to municipal data.
Gerli therefore estimates that houses in these areas are as much as 30 percent overvalued.
One such boomtown is Austin, Texas that has already seen home prices fall significantly from their peak following the pandemic.
Home price sales have already declined 2.9 percent year over year, data from Redfin revealed last month.
Thousands of Americans fled to Austin in the pandemic looking for more space and to take advantage of low taxes as remote work became a possibility.
The thriving tech industry in the city also attracted many well-paid skilled workers in the period.
Another Texas boomtown that has already seen prices dip is San Antonio.
Prices in Fort Worth were also pushed up by an influx of residents during the pandemic
The housing market on Florida's west coast, including Tampa (pictured), is also cooling
Home price sales in the city have already fallen 1.2 percent in the year to June, according to the data.
Fort Worth has also seen a decline of 1.2 percent in the same period.
Prices in San Antonio and Fort Worth were also pushed up by an influx of residents in search of a lower cost of living, better quality of life and lack of income tax.
The housing market on Florida's west coast is also cooling, according to recent data.
The housing market in North Port is cooling fastest - followed by Tampa and Cape Coral, according to the analysis from Redfin.
In North Port, which is located in Sarasota County between Tampa and Fort Myers, the supply of homes for sale is up 68 percent year over year - the second-biggest increase of the metros analyzed by the real estate company.
In Tampa, which also saw a surge of homebuyers during the pandemic, 43.1 percent of sellers are now dropping their asking prices, and the supply of homes is up 62.9 percent from April last year.
Meanwhile, in Cape Coral, inventory is up 64 percent, the median price per square foot is down 2.9 percent, and 37.5 percent of sellers are dropping their price - up from 32.9 percent a year earlier.
Florida is building more new homes than any other state - aside from Texas.
Gerli also pointed out that the state of the wider US economy could dent house prices in the near future.
'The economic cycle tends to follow the housing cycle,' he told Business Insider.
'The unemployment rate has gone up significantly. Interest rates are at the most restrictive level in two decades.'
Adding: 'I think at some point there's going to be a recession, who knows when it's going to happen, but obviously if and when it does, it's not going to be good for the housing market.'