FILE: A suburb located northwest of Houston as seen from Co-Star's aerial research team plane in Katy.

Home buyers hunting for a bargain in Houston are facing an increasingly tough market, but the city isn’t as overvalued as other major metros in Texas, a new report suggests.

In a national analysis of the top 100 housing markets, Houston ranked 51 on the list of most overvalued real estate markets. That’s better than San Antonio (which ranked 45 as most overvalued); Dallas (which ranked 18); and Austin (which ranked second.).

The analysis  –developed by researchers from Florida Atlantic University and Florida International University’s Hollo School of Real Estate – compares current home prices to where economists projected they “should be” based on 25-years of historical trends using data from the online real estate company company Zillow and other sources. 

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The most recent analysis, released this week, found that 98 of the nation’s top 100 markets saw prices in November that were well above historical trends, leading researchers to label most of these markets as “overvalued” compared to their historical averages.

In Houston, historical trends suggest that average home prices should have reached around $223,206 in November 2021 – but instead buyers were paying an average of $275,005 for a home, according to the analysis. 

The Houston market has become increasingly overvalued, the analysis suggests. In November 2020, Houston homes were sold at about 6.5 percent above what historical trends should suggest, according to the report. A year later,  they were selling at 23 percent above what historical trends would indicate.

A tight inventory, strong demand and low interest rates are continuing to buoy Houston’s housing market and support rising prices, but they aren’t escalating at eye-popping rates that some other cities have seen.

 Prices in San Antonio, for example, were overvalued by about 26 percent, researchers found. In Dallas-Fort Worth, home prices were overvalued by 38 percent, and  in Austin, by nearly 58 percent.

The analysis also shows that many West Coast markets, including Los Angeles and Boise, Idaho are starting to see a so-called pricing crown – or a leveling off of home price gains that typically precedes a market slowdown. Other markets gaining pricing crowns include San Diego and San Francisco, as well as Ventura and Stockton, California. This leveling off of prices hasn’t hit the central and eastern United States yet.

Houston and much of Texas are not expected to be as hard hit as other overvalued markets to a future real estate downturn because of steady population growth and favorable economic trends, said Ken Johnson, economist at Florida Atlantic University, in an interview.

“I’m just not as worried about most of the Texas cities – I’m worried about the Austin. .... it’s tremendously overpriced,” said Johnson, who co-authored the report with with Eli Beracha of Florida International University. 

The more overvalued a market is, the greater risk it has of seeing painful price drops when a downturn eventually hits, Johnson said.

Rapid population gains across the broader Houston metro area – which is expected to grow by about 20 percent over the next decade – should help the region weather almost any real estate downturn ahead, Johnson said.

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One Houston realtor wasn’t surprised to hear that Houston was considered a better bargain to other large metros. 

“One of the most unique things about Houston compared to other major cities is that we spread over 600 square miles. This makes the average Houston home more affordable because developers can build large suburban communities at lower prices because land is cheaper,” said Paige Martin, Team Lead, Houston Properties Team & Broker Associate Keller Williams, in an email.

Houston prices, however, are still rising rapidly. In November, the average sales price in Houston jumped 12.6 percent.

Demand also remains strong, supporting higher prices. Average listing prices hit a record high of $399,946 in December, according to the Houston Association of Realtors, which is expected to release its December home sales report next week.

Marissa Luck covers real estate for the Houston Chronicle.

Originally from Hawaii, Marissa previously covered refining and chemicals for the Chronicle and also had stints at Costar, the Austin Business Journal and The Daily News in Longview, Wash.

She grew up near Seattle and studied international political economy at The Evergreen State College in Olympia, Wash.

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