Trulia: Home Prices Still Undervalued, Not for Long

While home prices are estimated to be 3% undervalued nationally in the second quarter of this year, they are projected to align with long-term fundamentals by the first quarter of 2015, Trulia’s latest Bubble Watch report finds.

During last decade’s housing bubble, home prices soared to a level that was 39% overvalued in the first quarter of 2006, then dropped to being 15% undervalued in the fourth quarter of 2011. In the first quarter of this year, prices looked 5% undervalued, and in the second quarter of last year prices looked 8% undervalued.

“The good news for bubblephobes is that price gains are now slowing down while prices still look (slightly) undervalued,” writes Jed Kolko, chief economist for Trulia. “We’d be at greater risk of heading toward a bubble if price gains were still accelerating, but they’re not.”

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Eight of the 10 most overvalued housing markets are in California, with Orange County, Los Angeles, and Riverside-San Bernardino in the top four. However, they are not seeing the return of last decade’s bubble. These California markets are much less overvalued than they were at the height of the bubble. Orange County is just 17% overvalued now versus being 71% overvalued in the first quarter of 2006.

Among the most overvalued markets today, only Austin looks more overvalued now at 13% versus 8% in the first quarter of 2006, “and that’s because Austin, and Texas generally, avoided the worst of last decade’s bubble and bust,” Kolko says.

Read the full report here

Written by Cassandra Dowell

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