Four Large Cities Considered Overvalued

Posted by Amrock

Four major U.S. cities are “ringing the housing bubble alarm” as price gains move into overheated territory, reports CNBC. Home prices in Denver, Houston, Miami, and Washington, D.C., are said to be above sustainable levels.

Housing affordability “rapidly deteriorating”

The data comes from a new report by CoreLogic, the real estate data firm. According to the article, CoreLogic compared current prices to long-run sustainable levels inferred from local market fundamentals such as disposable income. When current prices tick up 10 percent or higher above sustainable levels, the market is considered overvalued. The same report places the rest of the top-ten U.S. housing markets “at value” meaning they are within a safe range. None of the top markets were determined to be undervalued.

“With no end to the escalation in sight, affordability is rapidly deteriorating nationally,” Frank Martell, president and CEO of CoreLogic, told the news outlet. “While low mortgage rates are keeping the market affordable from a monthly payment perspective, affordability will likely become a much bigger challenge in the years ahead until the industry resolves the housing supply challenge.”

Unsold inventory at 30-year low

The article notes that prices for June are up 6.7 percent from last year, and 50 percent higher than the trough of the housing crash in March 2011. One factor pushing up prices is housing supply, which is at a historic low.

“As of Q2 2017, the unsold inventory as a share of all households is 1.9 percent, which is the lowest Q2 reading in over 30 years,” Frank Nothaft, chief economist at CoreLogic, told the news outlet.

However, some of the markets with the steepest pricing spikes are now moderating. San Francisco is now considered to be “at value,” with prices up just 5.3 percent year over year. Likewise, the New York metropolitan area is seeing price gains of just three percent from last year.

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