Half of Top Housing Markets Overvalued

Posted by Amrock

Home values in 52 percent of the top U.S. housing markets were considered overvalued in April of 2018, according to the latest data, reports CNBC. Nationwide, home prices were up almost seven percent from a year ago, pushing home values in many housing markets higher than the local economy can support.

Overvalued market share increases 

The report from CoreLogic, the real estate data firm, determined affordability “by comparing home prices to their long-run, sustainable levels, which are supported by local market fundamentals.” The article explains that a housing market is considered overvalued when home prices are at least 10 percent higher than that determined long-term, sustainable level.

The percentage of overvalued markets has been rising, reaching 52 percent in April, up from 50 percent in March. According to the rest of the April report, 34 percent of the largest 50 home markets were considered at value, while 14 percent were considered undervalued.

Some high-priced like San Francisco are not overvalued

Notably, not all expensive housing markets are overvalued. The article points out San Francisco, where home prices have spiked 12 percent year over year. Yet San Francisco is considered at value, because local incomes can support the area’s prices. Boston reportedly is another market with higher home prices that is not overvalued.

Some of the housing markets that were considered overvalued in April data include Denver, Washington, D.C., Houston, Miami, New York, Las Vegas and Los Angeles.

Demand and supply issues driving overvalued market share

High demand and very short supply are helping to drive up home prices and create more overvalued housing markets. Home supply has been in decline for about three years, with housing absorption rates rising for new housing stock. Homebuilders are said to be increasing production somewhat, but primarily in the step-up home and luxury home markets, leading to a shortage of entry-level home markets.