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Mortgage

CoreLogic: There are now 7 hugely overvalued housing markets right now

Nearly double from last quarter

Seven major U.S. housing markets are overvalued, according to data through February 2015 in CoreLogic’s Market Condition Indicators report.

In October 2014, the Market Conditions Indicators put that number at four.

Then, as is the case now, at least half of the overvalued markets are in Texas.

CoreLogic Market Condition Indicators evaluate whether individual markets are undervalued, at value, or overvalued based on a number of economic variables.

The chart below shows the average of the gaps between home prices and their long-run sustainable level in the largest 100 markets, weighted by housing stocks.

Click to enlarge

(Source: CoreLogic)

During the bubble years of 2005 through 2007, home prices were significantly more than 10% above the long-run sustainable levels. During the market collapse, home prices quickly fell more than 10% below the sustainable price during late 2010 and early 2013. Subsequently, as home prices have continued to rise, the gap has narrowed to 7% below the long-run sustainable level in February 2015.

By the end of 2017, the gap between CoreLogic HPI and the sustainable level is forecasted to be 3.5%.

Click to enlarge

(Source: CoreLogic)

On the list are all four large metro areas in Texas — Austin, Houston, Dallas and San Antonio — where an oil and gas boom has fueled job growth and population growth, pushing home prices well above their sustainable levels. That boom may also last a little longer, as the state recently put an end to local government's ability to ban fracking.

Home prices in these four markets are also well above their historical peak levels: 26.9% for Austin, 18.3% for Houston, 14.8% for Dallas and 8.4% for San Antonio. Of the other three overvalued metros, Miami, Fla. and Washington, D.C. were on the list in October; Charleston, S.C., is a new addition.

As home prices rose significantly since 2013, homes have become less affordable, and, therefore, home prices less sustainable.

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