JAN 4, 2013 1:22pm ET

Fitch Tempers Optimism about Home Price Gains

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Fitch in a report Friday tempered its optimism about U.S. home price increases that have been the largest since 2005, noting that gains tend to be from factors like supply-demand imbalances rather than economic strength, and that certain markets are still overvalued.

“Some regional housing markets are overvalued because the rebound of home prices began before the bubble had completely deflated, and as a result they never reached sustainability,” Fitch director Stefan Hilts said in an email response to a question from this publication.

Hilts added, “Some markets are also overvalued due to a glacial foreclosure process, though this will also make for a soft landing, with home prices to remain flat for the foreseeable future.”

Still, Fitch finds more metropolitan statistical areas are undervalued or sustainable than not, with 22 out of the 41 it tracks in that category. In contrast, 23 MSAs were overvalued in 2010.

Veros also noted in a recent home price forecast that while data suggest the majority of markets will appreciate this year, the numbers also suggest there some that will not.

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