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U.S. House Prices Analysis and Trend Forecast 2019 to 2021

The Diversity of the Current US Housing Market

Housing-Market / US Housing Oct 03, 2014 - 11:33 AM GMT

By: Boris_Dzhingarov

Housing-Market

Though greatly improved from the staggering declines of the past decade, the US housing market still tends to undervalue homes by an average estimated 3%. This is the broad view, but America is an enormous country with multiple submarkets. Comparing Metropolitan home sales to the sale of homes in less concentrated areas illuminates the fact that US Housing is not one market, but several.


Due to their enormous populations, internal changes, and swelling migrations, cities tend to have a “hot or not” relationship to the general housing market. In many of America’s fastest-growing cities, the price of houses well outpaces the increase in local income levels or job opportunities. Whether this gradually stabilizes or turns into a mini-bubble of its own has played out differently in various municipalities throughout the nation’s history. Only time will tell. For now, the statistics indicate the momentum enjoyed or endured by the US’s largest population centers.

Generally speaking, homes are overvalued in metropolitan areas in the West and Southwest, particularly California and Texas. In fact, of the top 10 cities with the most overvalued homes, 6 are in California. California continues to be a wild card in the housing market. With progressive governance existing alongside looming environmental threats and water shortages, there is no way to know if the market can sustain its momentum or will eventually bottom out. This is true for all of these 10 cities, including Austin, Houston, Honolulu, and Denver, but most dramatically so for California (Oakland, San Francisco, San Jose, Riverside San Bernadino, Los Angeles, Orange County). It should be noted that while some of these markets are still very high (15% overvalued in LA), the same markets were even more overvalued before 2008 (73% overvalued in LA).

Those American homes that are notably undervalued, with regard to other ecomonic and cost-of-living factors, are all in the North West. Trulia shows these 10 cities limited to Ohio, Michigan, and New England. Dayton is most undervalued city for home sales (21%), with other nearby cities like Cleveland and Detroit (unsurprisingly) close behind.

It should be noted that even American cities that didn’t make either of the top 10’s overall still have tremendous undervaluation or similar problems in sectors of their markets. Baltimore and St. Louis, for instance both have such extensive vacancy problems in certain neighborhoods and districts, that houses are hugely undervalued. These rates are offset by overvaluation in up and coming parts of these cities. The presence of these structurally sound, but population emptied regions has made certain areas a hotbed for first-time homebuyers and developers. The Remington neighborhood of Baltimore is just one example, experiencing enormous buy-in to the hundreds of recently empty rowhouses lining its streets. St. Louis, like Baltimore, seems to be turning the corner, in many communities, from dump to destination.

With only a handful of cities cited with overvalued home estimates at 10% or more, Bobby Kotickand others, don’t see the possibility of another housing bubble as an immediate threat. Maybe it’s just time to buy real estate in the Northeast. Whatever the future holds, construction and employment among young people are still growing only slugglishly. Burst bubbles are typically precipitated by these sectors having had sustained growth for a significant period of time. With these areas still to recover, it would be no surprise to see the trend of over and undervaluation continue in these cities for some time.

By Boris Dzhingarov

© 2014 Copyright Boris Dzhingarov - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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