The U.S. housing market is showing significant recovery since the the most recent market collapse over half a decade ago, with home prices rising steadily in many local markets.
In 2013 alone, national home prices, including distressed sales, rose by more than 11%, according to the October 2014 The MarketPulse report. After a 20+ month streak of double-digit year-over-year house price appreciation, house price growth has begun to moderate.
And by August 2014, national home prices had risen another 6.5% year-to-date, data show.
But CoreLogic market condition indicators suggest bubbling isn’t happening yet, says CoreLogic principal economist Mark Liu in a written statement.
“Overall, despite significant house price growth since 2012, most markets are still well within sustainable levels, with most still recovering from the market collapse,” Liu says.
Using 10% as the threshold, CoreLogic defines an “overvalued market” as one where the house price is more than 10% of its long-run sustainable level, and an “undervalued market” is one where the house price is less than 10% of its sustainable level.
During the bubble years — January 2005 to November 2007 — home prices were more than 10% above sustainable levels. During the market collapse, home prices fell quickly to levels of less than 10% below the sustainable price.
Since then, as house prices continued to rise, the gap narrowed to 6% below the long-run sustainable level by August 2014, and is forecasted to shrink further to just 3% by the end of 2016.
Topping the list of overvalued markets are two metros in Texas: Austin and Houston, where job and population growth are pushing home prices. In addition, the metros of Miami, Fla. and Washington D.C. are also overvalued.
“As home prices have risen significantly since 2013, homes have become less affordable in these two markets, and therefore, prices are less sustainable,” Liu says.
On the flip side, Pittsburgh, Pa. tops the list as the most undervalued metro. Other major undervalued metros include Providence, R.I., Cleveland, Ohio and Sacramento, Calif.
Read the report here.
Written by Cassandra Dowell