Housing Market Crash Could See Values of Homes Plummet in These 11 States

The U.S. housing market is starting to slow after months of record-high home prices, surging mortgage interest rates and a lack of inventory that has forced buyers into merciless bidding wars.

This slowdown, which could eventually bring home prices down, could also go into a completely opposite direction, one that economists dread: a market crash.

In the first quarter of 2022, home prices have surged by 16 percent on average across the country, according to Moody's Analytics. But while prices have increased everywhere across the nation, the changes have not been the same in every state.

While in many states, home prices have risen by less than 12.5 percent, in 11 states home prices have soared by over 20 percent. These are:

  1. Arizona
  2. Florida
  3. Georgia
  4. Hawaii
  5. Idaho
  6. Nevada
  7. North Carolina
  8. South Carolina
  9. Utah
  10. Tennessee
  11. Washington

Powered by a severe housing shortage —fueled by the lingering consequences of the 2008 financial crisis and the pandemic— and the migration of people moving across the country thanks to the possibility of working remotely, in much of the nation, and especially in these 11 states, homes are overvalued.

According to Moody's Analytics, homes are now even more overvalued than they were during the 2000s housing market bubble. To some, this situation indicates the possibility that the market could crash, starting with these 11 states.

But Moody's Analytics top economists believe that a correction of the market is coming, rather than a crash.

"I don't think we're going to see a crash for a number of reasons," Moody's Analytics chief economist Mark Zandi told Newsweek.

"One, the market is very tight. In the physical market, vacancy rates are pretty close to record lows and for the sale market they are at record lows," Zandi said. "Lending has been very good since the financial crisis. Underwriting has been strong. The 30-year, 15-year fixed-rate mortgage is nothing exotic, nothing complicated."

"You need lots of defaults in distressed sales to get prices to fall sharply. And I just don't see that happening," Zandi explained. "It would only happen if we got into some kind of stagflation environment, with very high interest rates and very high unemployment. But that doesn't seem likely."

"Our fundamentals are quite a bit better than what was going on in the run-up to the 2008 crisis," agreed Moody's Analytics chief economist Thomas LaSalvia.

"Demand has been quite strong recently. Supply has been relatively weak. We don't have the credit issues that plagued us last time around. Homeowners and the labor market are in better shape," he said.

"There's some excess savings out there, over 2 trillion worth, actually, still. [...] There are people that have ownership of those homes right now, that even in a downturn, they'd still likely be able to pay that mortgage and won't have to hand over keys. And there won't be a lot of those distressed sales that happened in the 2008 crisis," LaSalvia explained.

As home prices have reached heights that makes homes impossible to afford for many, home sales have started to wane, leading to a slowdown of the U.S. housing market. Whether what will follow will be a crash or a correction of the market, remains to be seen.

Housing market USA
While home prices have increased by 16 percent on average across the country in the first quarter of 2022, in 11 states they have surged by over 20 percent. In this photo, single-family homes are shown in a residential neighborhood on May 10, 2022 in Miami, Florida —one of these 11 states. Joe Raedle/Getty Images