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Housing markets resting on the laurels of juiced up home prices may be at risk in 2014 if those dramatic price swings are not supported by economic fundamentals.

And while Fitch Ratings expects most of the U.S. to experience modest and slow home price appreciation in 2014, a few markets have the research firm's bubble radar going off, according to Rui Pereira, managing director of structured finance for the ratings giant.

The Fitch Sustainable Home Price Model shows national prices overall overvalued by 15% in real terms. But when looking at individual local markets, prices in many cases are in line with economic fundamentals.

It’s when looking at California markets that much of the risk comes in.

One of the state’s riskiest zones – San Francisco – also captured the attention of HousingWire this past week. 

 In the West Coast city, price-to-rent and price-to-income ratios have risen nearly 25% since the start of 2012, Fitch points out. In fact, both metrics are now nearing all-time highs.

As DataQuick recently reported, the median price for a "Bay Area" home hit $548,500 in December, which is slightly down from November, but still up 23.9% from $442,750 a year earlier, the research firm said.

San Francisco prices are getting closer to levels reached in the 2006-2007 bubble when the median Bay Area price hit the $665,000-mark.

"Fitch believes most of the U.S. will see continued home price growth reflecting market momentum, the effects of inflation, the improving economy, and a return of buyers attracted by signs of stabilization," Pereira said.

"However, gains are expected to slow compared to prior years due to rising mortgage rates and more inventory becoming available. Mortgage volumes are expected to decline as rising rates further curtail refinancing."

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