As Markets Come to Boil, Analysts Dispel Bubble Fears

Despite major gains in home values, particularly in California, market strategists from Pro Teck Valuation Services say there is no bubble on the horizon.

On Monday, Pro Teck released its March Home Value Forecast, which ranks the hottest and coolest metro markets in the country. California claimed nine of the top 10 slots (Nassau County-Suffolk County, New York, was the other), while Florida claimed seven of the bottom 10areas for home value appreciation.

And though California has shown impressive gains in valuation recently—a trait that often makes California the subject of “new bubble” talk—Pro Teck CEO Tom O’Grady said he does not foresee trouble over the next five years.

“The Los Angeles metro area has appreciated 48 percent over the past five years,” O’Grady said. “It’s an impressive run, but far from bubble territory.” The reason he’s not anticipating a bubble is because Pro Teck’s data has shown that bubbles don’t happen until a market appreciates 150 percent or more for five straight years.

And he doesn’t see it happening through 2019, even in the strongest market going, Los Angeles.

“Our forecast for the next five years still shows that home prices in the Los Angeles market will see a steady uptick, but no bubble and will remain below their 2006 peak,” he said.

This month’s forecast shows a median home price of $449,300 in the L.A. market, which is still well below its peak of $551,500 in the fourth quarter of 2006.  If interest rates rise to 6 percent by 2019, the report states, median home prices should still only appreciate to $503,900 by the end of 2019.

One of the primary drivers of the appreciation in the California metros, O’Grady said, is the limited inventory of homes, which often leads to bidding wars. “All nine metros have four or less months of remaining inventory,” he said.

As for the bottom 10, all metros that made Pro Teck’s list of poorly performing areas have two common threads—high foreclosure ratios and high months of remaining inventory, O’Grady says.

“The good news is that there are many positive trends, including the decrease in the number of active sales in the majority of the markets.”