The Home Buyer's Korner

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May 28th, 2015

Guy looking up in color

Case-Shiller for February 2015

Case Shiller

The closely watched case-shiller index showed home prices continued to climb in 20 cities for March. The S&P/Case-Shiller’s 20-City Composite gained 5 percent year-over-year in March, matching February’s pace of appreciation.

Ten cities saw home prices rise in the last 12 months, and ten urban areas reported a year-over-year decrease. Home prices in San Francisco and Denver led the gains, increasing by 10.3 percent and 10 percent, respectively. The double-digit gain was San Francisco’s first since July 2014. Home values in the San Francisco Bay Area slowed to 8.2 percent in the third quarter of 2014, off its peak of 23.5 percent in 2013.

Homes in the five county bay area were averaging $689,900 in the third quarter of 2014, as compared to the national average at $176,500. Home markets like San Francisco that were the first to rebound have largely slowed down in price growth beginning in the third quarter of 2014 and it was a welcomed relief for would-be home buyers, who have been priced out of the market.

At the time housing analyst were concerned the heat up could have gotten a little ahead of itself and expected in 2015 home prices would appreciate in the Bay Area at just 2.9 percent. It’s just another signal that even the experts these days are clueless on a host of issues related to housing and even the larger economy.  

Cleveland saw the largest slide, with home prices falling 1.2 percent from March 2014.

Home prices nationally, however, are rising quicker than either personal income at 3.1 percent or wages at 2.2 percent, which is narrowing the pool of future home-buyers.

Tight supply and strong demand pushed the median price of homes sold in April to $219,400, up nearly 9 percent from a year ago, according to the National Association of Realtors. While that is still below the 2006 peak of $230,400, the Realtors’ Chief Economist, Lawrence Yun, said he expects to approach that level this year.

Given that income growth is not even close to matching home price growth, certain housing markets are pushing past what is considered sustainable, based on the median income.

Seven out of the top 100 metropolitan U.S. housing markets are overvalued, according to a new study by CoreLogic, a real estate analytics company. That’s up from four last fall. It is a little bit worrisome because these markets are becoming overvalued without strong demand and if there were more construction, these markets would not be overvalued.”

Four of the seven are in Texas: Austin, Houston, Dallas and San Antonio. These markets did not surge and crash during the last housing boom. Instead, they were fueled by oil and gas, which pushed both prices and population. Home prices in these cities are now at historic highs, with Dallas home values 15 percent above their peak in 2007. Austin home prices are 39 percent above what CoreLogic considers sustainable.

Texas has been here before, but for different reasons, but it doesn’t mean we will see what happened in the early ’80s. Fortunately, Texas markets are not nearly as overvalued as they were then and there isn’t the same dislocation in non-oil segments.

The Texas economy is far more diverse now, with technology, health care and insurance sharing the wealth and the state is not nearly as susceptible to movements in oil prices. Home building analysts, however, are watching Texas carefully, waiting to see any impact lower crude prices will have on both jobs and housing demand.

Also on the list is Charleston, South Carolina, where home prices are still below their peak of 2007, but where prices are considered over-valued.  Charleston is one of the healthiest markets in the country and they have good job growth and very strong newly built home sales.

See What's Happing In Your Housing Market

See What’s Happing In Your Housing Market

Miami and Washington, D.C., round out the list of seven, but home prices in both markets are still well below their 2007 peaks. Miami is being fueled by foreign cash, which accounts for the gap in home prices and local median incomes. Washington, which includes the northern Virginia and Maryland suburbs, is one of the most affluent areas in the country. It has also not seen enough home construction, both of which push home prices higher.

While these seven cities are considered overvalued, they are also regarded as healthy. It’s because prices are being driven by low inventory amid sub-par demand, not by easy credit. 


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