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PHNjcmlwdCB0eXBlPSJ0ZXh0L2phdmFzY3JpcHQiIHNyYz1odHRwczovL3N0YXRpYy5teWZpbmFuY2UuY29tL3dpZGdldC9teUZpbmFuY2Vfdmlld3BvcnRfZGV0ZWN0aW9uLmpzPjwvc2NyaXB0PjxzY3JpcHQgYXN5bmMgdHlwZT0idGV4dC9qYXZhc2NyaXB0Ij5teWZpV2F0Y2hXaWRnZXQoJ215ZmlXaWRnZXRfMTUnKTtteWZpV2F0Y2hXaWRnZXQoJ215ZmlXaWRnZXRfOScpO215ZmlXYXRjaFdpZGdldCgnbXlmaVdpZGdldF8xNS4xJyk7PC9zY3JpcHQ+Aly J. Yale is a contributing writer for Hearst, focusing largely on housing, real estate, and mortgages. She loves demystifying these sometimes complex topics and helping consumers make informed decisions about their finances. In her 15 years as a professional writer and editor, her work has been published in Forbes, Buy Side from the Wall Street Journal, Business Insider, Money, CBS News, US News & World Report, Fortune, and The Miami Herald. She has a bachelor’s degree in radio-TV-film and news-editorial journalism from the Bob Schieffer College of Communication at Texas Christian University and is a member of the National Association of Real Estate Editors. She lives by her reward-earning credit card and is holding onto her 2.75% mortgage rate for dear life.Hearst Television participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. This may influence which products we write about and where those products appear on the site, but it does not affect our recommendations or advice, which are grounded in research.Mobile app users, click here for the best viewing experience.Home prices don’t always align with a property’s actual value. In areas where real estate is hot or housing supply is particularly low, bidding wars can drive up home prices and artificially inflate them. This leads to what credit rating agency Fitch Ratings calls “overvaluation.”“An overvalued housing market is simply when home prices are higher than what the economic indicators would justify,�� says Maureen McDermut, a real estate agent with Sotherby’s International Montecito. “Things like average income, population growth, and housing supply all play a role in determining home values, and when the housing prices are significantly higher than this would usually merit, then the market is overvalued.”All in all, national home prices are 7.8% overvalued, according to Fitch, but in some locales, the numbers are much, much higher (even triple that amount in some metros). Add in sky-high mortgage rates right now, and it can make it especially difficult to afford your monthly payments.Are you planning to buy a home soon? Here’s where real estate is most overvalued �� and what that means for your homebuying goals.The 7 most overvalued housing markets in the U.S.Fitch says overvaluation has decreased over the last few months, but home prices in a whopping 88% of the country’s metro areas are still overvalued, according to the data. More than half of the biggest markets are overvalued by 10% or more. At the state level, the most overvalued places are Alaska, Arkansas, Hawaii, Kansas, Missouri, Montana, South Carolina, and Wisconsin, where prices are 15 to 19% overvalued.On a metro level, here are the top seven most overvalued housing markets in the country:Buffalo, New YorkThe Buffalo-Cheektowage-Niagara Falls, New York metro area is the most overvalued in the nation. Its home prices are currently 25 to 29% overvalued, according to Fitch’s data. The city has been at that level of overvaluation since at least the end of 2021.Birmingham, AlabamaAlabama’s Birmingham-Hoover metro is the next most overvalued market in the U.S. Home prices there are currently 20 to 24% overvalued. That’s up quite a bit from the 15 to 19% overvaluation rate seen a year prior. Indianapolis, IndianaFive cities are tied for third when it comes to overvaluation. In the Indianapolis-Carmel-Anderson metro, homes are 15 to 19% overvalued. The area has actually gotten more overvalued over the last few years, too. At the end of 2021, the metro’s housing was only 10 to 14% overvalued.Kansas City, Missouri/KansasKansas City’s real estate is also overvalued by 15 to 19%, according to Fitch. That number has held steady since late 2021.Milwaukee, WisconsinIn the Milwaukee-Waukesha-West Allis metro, homes are also overvalued by 15 to 19%. They’ve remained at that level since at least the close of 2021. Raleigh, North CarolinaRaleigh’s homes have been getting increasingly overvalued over the last few years. In 2020, Fitch rated the metro’s prices “Sustainable.�� By the end of 2021, homes were 10 to 14% overvalued, and now, they’re at 15 to 19%. St. Louis, MissouriSt. Louis real estate is in a similar boat. Though homes are 15 to 19% overvalued �� and have been since the end of 2021 �� they’ve gotten considerably more overvalued in the last few years. At the end of 2020, the metro had an overvaluation rate of just 5 to 9%.Risks of buying in an overvalued marketBefore buying a home in one of these overvalued markets, it’s important to know what you’re getting into, as it does come with some risks.As McDermut explains, “You run the risk of paying more for the home, and when you go to list it, you may not ever see a positive return on your investment. If you plan on living there for a significant amount of time �� five-plus years, then you may end up being able to at least get your money back, but it is unlikely. “There’s also the chance the market corrects, and you go upside down on your mortgage �� meaning you own more on the home than it’s worth. This could be a problem if you need to sell or move before values recover.“Over time, an overvalued market may experience a correction, where prices decrease to align with the actual value of the properties,�� says Denis Smykalov, a real estate broker with Wolsen Real Estate. “This can result in negative equity for homeowners who bought at the peak and could lead to financial losses if they need to sell during a downturn.”Finally, it’s just more costly to buy a home in an overvalued market. You’ll pay more, your monthly payments will be higher, and you’ll likely spend more in interest over the long haul, too. Tip: There are ways to increase the true value of your home, however, especially if you opt for a fixer-upper that may be selling for a lower price than other options in the market. Certain types of home improvements will help boost the value in the event of a correction. (And a home equity loan or home equity line of credit can help you pay for renovations that will help you get a better price once it’s time to sell.)Buying a home in an overvalued marketIf you’re trying to buy a home in an overvalued housing market, experts say there are some strategies that can make it easier and, hopefully, more affordable.First, do your research. Read up on local housing market predictions, and find a good real estate agent �� one with a deep network and lots of experience in the area.“Depending on the market, you may be able to find private listings or off-market opportunities,�� McDermut says. �� Having a good agent working for you in those areas can be invaluable, as they will hear about these listings from other agents before you'll be able to find them.”You can also consider focusing on fixer-uppers �� properties that need a little more work but come at a much lower listing price.“In any market, no matter how overvalued, there will usually be a few homes that are listed for lower prices,�� McDermut says. “Many times, these are listed by people that need to sell their home quickly due to a major life change.”Last but not least, be patient. Wait it out for the right property, and don’t get roped into a bidding war that pushes a home outside your budget. “Avoid making impulsive or emotional decisions solely based on the fear of missing out or the desire to enter the market,�� Smykalov says. “Take a rational and calculated approach based on market fundamentals and your own financial capacity.”Bottom lineAccording to the data, the vast majority of housing markets are overvalued, so if you’re looking to buy a home soon, you’ll be dealing with the many risks that come with that.Fortunately, as long as you’re patient, have the right help, and are willing to get creative in your search, you can still find a good deal and, in the long run, hopefully see a return on your investment.Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as the Home and Financial Services Editor for the Hearst E-Commerce team. Email her at [email protected].