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The Top 16 High-Risk Housing Markets

shutterstock_351110651Despite rising buyer demand and low for-sale inventory causing home prices to rise across the nation, most markets are still healthy, according to CoreLogic's Market Health Indicator. However, 16 of the top 100 metro markets evaluated, with 10 in Florida alone, have been identified as high-risk markets.

In order to determine whether a market is a high, normal, or low risk, the report analyzes several economic factors. The first is a comparison of home prices using CoreLogic’s Home Price Index and the long-run sustainable levels that can be supported by local fundamentals, such as disposable income.

“Because most homeowners budget a portion of their income for shelter costs, and these costs are generally related to home prices, there is an established long-term relationship between income levels and home prices,” the report notes.

The second factor considered is the appreciation of home prices relative to rents—as renting is an alternative to homeownership—and if home prices veer too far from rents, then it is eventually due for a correction. The final factor is if housing flipping is too high, which causes investors to speculate on short-term price gains and an increase in vacancy rates. According to the analysis, housing bubbles are often accompanied by widespread mortgage fraud.

With all of these factors put into place, CoreLogic reports the 16 highest-risk markets of the top 100 metros areas analyzed—with 10 in Florida and six in California, Louisiana, Nevada, and Texas. The list includes:  he_fig1_large_revised2

In these top metro areas, home prices have appreciated by more than 40 percent since January 2012—with the exception of Nassau County-Suffolk County, New York and New Orleans-Metairie, Louisiana.

When it comes to renting, the data finds that it appreciated less than half of the home price growth. All 16 markets are overvalued on the basis of both price-to-income measures and price-to-rent measures. The chart also shows the national ranking for flipping and fraud risk in these metro areas.

“As we can see, most of them have flipping and fraud ranked in the top quantile, indicating short-term speculation as well as a high risk of mortgage fraud, which might lead to another bubble in those areas,” the report notes.

To view the full report, click here.

About Author: Nicole Casperson

Nicole Casperson is the Associate Editor of DS News and MReport. She graduated from Texas Tech University where she received her M.A. in Mass Communications and her B.A. in Journalism. Casperson previously worked as a graduate teaching instructor at Texas Tech's College of Media and Communications. To contact Casperson, e-mail: [email protected].
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