Overvalued Housing Markets Double in Q2

The number of overvalued housing markets in the second quarter of 2015 doubled from the first quarter to reach 14.

CoreLogic’s Market Condition Indicators, which determines if individual markets are undervalued, at value, or overvalued based on real disposable income per capita, found that 14 of the top 100 real estate markets are overvalued in the U.S. based on data through June 2015.

In addition, Texas hosts the largest number of overvalued markets, with five of its six top markets deemed too pricey. These markets include Austin, Houston, Dallas, San Antonio, and Fort Worth.

“Home prices in five Texas markets are well above their historical peak levels partly due to strong job growth and to the absence of the severe boom-bust housing cycle that was seen elsewhere,” CoreLogic said. “Between 2006 and 2014, an oil and gas boom had fueled job and population growth in some markets, pushing home prices well above their sustainable levels in these markets.”

In the Austin, Texas metro, the percentage of home prices relative to the long-run sustainable level reached 42.3 percent, while homes have appreciated 16.3 percent since January 2014.

In the second overvalued market, the Houston, Texas metro, homes were 25.4 percent higher than their long-run sustainable level, while home prices appreciated 16.3 percent from January 2014.

Charleston, North Carolina ranked third with home prices 23.4 percent above their long-run sustainable level, while home prices appreciated 12.8 percent since January 2014.

“As home prices have risen significantly since 2013, homes have become less affordable, and therefore home prices less sustainable,” the report said.

In the bubble years of 2005 and 2007, home prices rose more than 10 percent above the long-run sustainable levels, according to CoreLogic. However, during the market collapse, home prices declined more than 10 percent below sustainable prices during late 2010 and early 2013.

As home prices continue to rise, that gap has lowered to 3.6 percent below the long-run sustainable level in June 2015. The national housing market is expected to remain within the normal range up until the end of 2017, with the gap projected to decrease to 1.5 percent.

Click here to view CoreLogic’s Market Condition Indicators.