Based on data through June 2015, the CoreLogic Market Condition Indicators identified 14 of the top 100 markets in the U.S. as overvalued, double the number as of the end of the first quarter 2015.
Texas leads with the largest number of overvalued markets, with five of its six top markets identified as overvalued. The Market Condition Indicators evaluate whether individual markets are undervalued, at value or overvalued based on the market’s real disposable income per capita. The analysis expects the national housing market to remain within the normal range (+/- 10 percent) of the long-term sustainable level through 2017, with most of the top 100 markets at value.
The most overvalued markets in terms of percent of home price relative to the long-term sustainable level are:
Austin-Round Rock, Texas (42.3 percent); Houston-The Woodlands-Sugarland, Texas (25.4 percent); Charleston-North Charleston, S.C. (23.4 percent); Miami-Miami Beach-Kendall, Fla. (20.6 percent); Washington-Arlington-Alexandria, DC-Va.-Md.-W.Va. (19.2 percent).
Home prices in five Texas markets are well above their historical peak levels partly because of strong job growth and to the absence of the severe boom-bust housing cycle that was seen elsewhere. 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 those markets.
Since last year, geopolitical events have shifted in favor of excess oil supply, possible exerting further downward pressure on oil prices in the next few years and impacting some of these Texas markets.
During the bubble years, 2005-2007, home prices across the country were more than 10 percent above the long-run sustainable levels. During the market collapse, home prices quickly fell more than 10 percent below the sustainable price during late 2010 and early 2013. Subsequently, as home prices have continued to rise, the gap has narrowed to 3.6 percent below the long-run sustainable level in June 2015 and is expected to remain within the normal range through the end of 2017, with the gap forecasted to shrink further to 1.5 percent.
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