While the national housing market is still about 5 percent undervalued there are several local markets that may already be in bubble territory, according to Trulia’s 2014 First Quarter Bubble Watch.
Local prices are overvalued in 19 of the 100 largest metro areas, more than at any time since the fourth quarter of 2009, when the country was still in the recession. In California, 8 of the 11 largest metros look overvalued. In Orange County, Los Angeles, Honolulu, and Austin, home prices are overvalued by more than 10 percent.
While home prices in those markets are in bubble territory, Trulia’s chief economist Jed Kolko writes in a blog post that the majority of markets appear fundamentally sound when evaluated based on incomes, rents, and historical price paths.
“Even though recent double-digit price gains look unsustainable, current national price levels are not cause for alarm,” he writes. “Sharp price gains, like we’ve had in 2012 and 2013, are not the sign of a bubble unless price levels look high relative to fundamentals.”
The recent slowdown in the pace of price gains nationally makes it even less likely that the country is headed for a bubble. Nationally, home prices posted their third consecutive monthly decline (of 0.1 percent) in January, although prices remain up 13.2 percent year-over-year, according to data released today by S&P Case-Shiller.
Rising interest rates may continue to tamp down gains: Interest rates for a 30-year fixed mortgage averaged 4.3 percent last month, up from an average of 3.98 percent throughout 2013.
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