Based on data through February 2015, CoreLogic Market Condition Indicators identified seven of the top 100 markets in the U.S. as currently overvalued. In October 2014, Market Conditions Indicators put that number at four. Then, as is the case now, at least half of the overvalued markets were in Texas.
CoreLogic Market Condition Indicators evaluate whether individual markets are undervalued, at value, or overvalued based on a number of economic variables. Subscribers to CoreLogic HPITM or CoreLogic HPI ForecastsTM automatically receive the Market Condition Indicators enhancement.
The analysis expects the national housing market to move within the normal range (+/- 10 percent) of the long-term sustainable level through 2017.
Figure 1 shows the average of the gaps between home prices and their long-run sustainable level in the largest 100 markets, weighted by housing stocks. during the bubble years of 2005 through 2007, home prices were significantly 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 7 percent below the long-run sustainable level in February 2015. By the end of 2017, the gap between CoreLogic HPI and the sustainable level is forecasted to be 3.5 percent.
Table 1 shows the seven overvalued markets of the top 100. On the list are all four large metro areas in Texas—Austin, Houston, Dallas and San Antonio—where an oil and gas boom has fueled job growth and population growth, pushing home prices well above their sustainable levels. Home prices in these four markets are also well above their historical peak levels: 26.9 percent for Austin, 18.3 percent for Houston, 14.8 percent for Dallas and 8.4 percent for San Antonio. Of the other three overvalued metros, Miami, Florida and Washington, D.C. were on the list in October; Charleston, S.C., is a new addition. As home prices rose significantly since 2013, homes have become less affordable, and, therefore, home prices less sustainable.
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