theMReport.com Your trusted source for mortgage banking news
Thirty-one of the top 100 U.S. core-based statistical areas, most in Florida and California, are overvalued—but that is not necessarily a sign of a new housing bubble, according to a five-year look at the U.S. housing market by CoreLogic.
The study looked at data between 2012 and 2016 and found that while home prices have grown steadily in most parts of the country, nearly a third are way above where they should otherwise be. California had the four most overvalued markets, with the Bay Area leading the pack. Housing in San Jose and Oakland has grown 80 percent since the beginning of 2012. Markets in Riverside and Los Angeles saw growth of almost 60 percent.
Florida claimed eight spots on the list of overvalued markets. Jacksonville, Tampa, Daytona Beach, Orlando, Palm Bay, Fort Lauderdale, and West Palm Beach all saw growth over 31 percent; Miami saw growth of 50 percent.
The remainder of the list was a smattering of Texas, New York, Oregon, Hawaii, and Washington State. The lowest place on the list belonged to Nassau County, New York, which saw 13 percent growth since 2012.
But does this mean a bubble is underway? Not exactly, said Mark Liu, vice president of modeling and analytics at CoreLogic. Unlike past bubbles, Liu said, higher prices are not being driven by the purely investment mentality of buying just to sell for a profit a few years from now.
“The high price growth rate alone of more than 40 percent over four years, in itself, is not evidence of a housing bubble,” he said. “In most states, the price-to-income ratio is very stable.”
Liu said a major reason behind the rises in U.S. markets, including the overvalued ones, revolve around the relationship between home price index and disposal income per capita. Twenty-one of those 31 overvalued markets show solid income to support growth there.
Trouble would only ensue if homeowners’ ability to pay came into question. “Over the shorter periods, home prices can exceed or fall below the long-run trend,” Liu said, “but over a longer time, home price growth cannot be sustained above income growth indefinitely because housing would become unaffordable. Demand would decrease causing home price growth to either slow down or decline, thereby realigning with income levels.”
