Two of the biggest and most populous states in America are officially overvalued housing-wise, at least that is what a new Fitch Ratings report is arguing.
Texas and California’s housing market are likely to face continued pressure due to falling energy prices. And while California throughout the years has remained in headlines for being unaffordable, Texas was renowned for skirting by most of the financial recovery.
Texas prices are approximately 11% overvalued, with prices in Houston, Austin and Dallas each growing by over 20% since 2011.
“The economies in Texas are strong with economic growth outpacing that of national improvement, but these high home price levels may be unsustainable,” said Fitch Ratings Director Stefan Hilts.
Since oil has long been a primary economic driver in Texas, Fitch is concerned on the potential impact from the drop in oil prices.
Falling by more than a 40%, prices are now in the mid-50s as of this week, deleting a five-year rebound in oil prices.
“Texas has an economic resiliency beyond energy that will help offset any significant downward movement in home prices for these markets over the next year,” said Hilts.
As far as the California economy goes, the Golden State remains near the top of the list of most overvalued housing markets in the country, significantly impacted by its volatile home prices. Also, growth of over 25% since 2012 has left many of the major markets amongst the most overvalued in the country.
Federal Reserve Chairwoman Janet Yellen commented on America’s oil situation during the most recent Federal Open Market Committee press announcement saying:
“I think the judgment of the committee is that from the standpoint of the United States and the U.S. outlook, that the decline we have seen in oil prices is likely to be on net a positive. It’s something that is certainly good for families, for households, it’s putting more money in their pockets, having to spend less on gas and energy, so in that sense it’s like a tax cut that boosts their spending power."