As home values continue to accelerate, conditions may be ripe in at least four metro areas for some “overheating,” which is sounding the bubble alarm among some industry analysts.
According to a CNBC report, there are some initial signs that home prices in four markets, including Denver, Miami, Houston and Washington, D.C., may be overvalued. On the flip side, some markets that had been hot are cooling. These include San Francisco and the New York City region.
Citing a survey by CoreLogic, CNBC noted that the four markets are considered overvalued and now exceed sustainable levels.
CoreLogic’s Market Conditions Indicators data compares home prices to their long-run, sustainable levels, which are supported by local market fundamentals such as disposable income. The MCI categorizes home prices in individual markets as undervalued, at value or overvalued. Because most homeowners use their income to pay for home mortgages, there is an established relationship between income levels and home prices.
According to CoreLogic, in determining if a market is overvalued, it compares current prices to their long-run, sustainable levels, which are supported by local economic fundamentals like disposable income. Frank Martell, president and CEO of CoreLogic, said an overvalued market is one in which home prices are at least 10 percent higher than that level.
“With no end to the escalation in sight, affordability is rapidly deteriorating nationally. 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.”
While home prices increased 6.7 percent nationally in June year-over-year, they are now up nearly 50 percent from the trough of the housing crash in March 2011. According to Realtor.com, the number of homes for sale in June was 11 percent lower year-over-year. Frank Nothaft, chief economist at CoreLogic, pointed out that gains are driven in part to a tightening supply of affordable homes for sale.
“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.”