Top U.S. housing markets may be overvalued

by Ryan Smith16 Sep 2015
Is the U.S. heading toward another housing bubble? Several of the top markets in the country may be overvalued, according to a new report from analytics firm CoreLogic.

The company’s Market Condition Indicators report that 14 of the country’s top 100 markets are currently overvalued. That’s twice as many as at the end of the first quarter. Texas has the largest number, with five of its top six markets identified as overvalued. CoreLogic identifies markets as overvalued, undervalued or at value based on the markets’ real disposable income per capita.

Fortunately, CoreLogic expects the national housing market to remain in the normal range through 2017, with most of the top 100 markets staying at value. But overvalued housing markets like the ones in Texas may not be sustainable.

“Home prices in five Texas markets are well above their historical peak levels partly due to strong job growth and to the absence of the severe boom-bust housing cycle that was seen elsewhere," the CoreLogic report stated. “Between 2006 and 2014, an oil and gas boom had fueled job and population growth in some markets, pushing home prices well above their sustainable levels in these markets.

"Since last year, geopolitical events have shifted in favor of excess oil supply, possibly exerting further downward pressure on oil prices in the next few years and impacting some of these Texas markets. The areas that have become overvalued since last quarter are: Cape Coral, Fla., two Tennessee markets, Knoxville and Nashville – Davidson – Murfreesboro – Franklin, Philadelphia, Silver Spring–Frederick–Rockville metro in Maryland and Denver–Aurora–Lakewood in Colorado. As home prices have risen significantly since 2013, homes have become less affordable, and therefore, home prices less sustainable," the reports says.

In the run-up to the housing collapse, home prices hit more than 10% above long-term sustainable levels. After the collapse, prices plummeted to more than 10% below sustainable levels. By June of this year, prices had recovered to 3.6% below sustainable levels, with that gap projected to shrink to 1.7% by the end of 2017. 

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