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Nearly half of nation’s largest 50 metros reach overvalue point

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Home prices increased across the nation, causing nearly half of the nation’s top 50 markets to become overvalued, according to the latest Home Price Index from CoreLogic, a property information, analytics and data-enabled solutions provider.

The HPI showed home prices increased 7% from September 2016 to September 2017 and 0.9% from August. And CoreLogic predicts this increase will continue, but at a slower pace with an increase of 4.7% from September 2017 to September 2018 and an increase of 0.1% by October this year, according to the HPI Forecast.

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home prices

(Source: CoreLogic)

The CoreLogic HPI Forecast is a projection of home prices using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.

“Heading into the fall, home price growth continues to grow at a brisk pace,” CoreLogic Chief Economist Frank Nothaft said. “This appreciation reflects the low for-sale inventory that is holding back sales and pushing up prices. The CoreLogic Single-Family Rent Index rose about 3% over the last year, less than half the rise in the national Home Price Index.”

And these increases are overvaluing many housing markets across the U.S. CoreLogic’s latest Market Conditions Indicators data shows 36% of the nation’s top 100 largest metro areas based on housing stock are overvalued, or 48% of the top 50 markets.

The MCI analysis categorizes home prices in individual markets as undervalued, at value or overvalued by comparing home prices to their long-run, sustainable levels, which are supported by local market fundamentals such as disposable income. The MCI analysis defines an overvalued housing market as one in which home prices are at least 10 percent higher than the long-term, sustainable level, while an undervalued housing market is one in which home prices are at least 10 percent below the sustainable level.

“A strengthening economy, healthy consumer balance sheets and low mortgage interest rates are supporting the continued strong demand for residential real estate,” CoreLogic President and CEO Frank Martell said. “While demand and home price growth is in a sweet spot, a third of metropolitan markets are overvalued and this will become more of an issue if prices continue to rise next year as we anticipate.”

Some of the market’s CoreLogic classified as overvalued include Las Vegas, which saw 9.7% increase in home prices from last year, Denver, where home prices increased 8.4%, Los Angeles with an increase of 7.1%, Miami with an increase of 5.5% and Washington D.C. with an increase of 4.6%.

But while certain markets could be becoming overvalued, and home prices continue to increase, affordability actually improved since July, according to the latest Mortgage Monitor report from Black Knight.

HW Housing Wire

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