Homes are overvalued by 17% on a nationwide basis right now, as
Right now there is a misalignment between home price levels versus supply and demand factors. While an economic recovery and “exuberant” home buying population could push prices higher for some time to come, there are factors like rising interest rates which could send prices downward, Fitch says.
Perhaps the biggest concern is that recent home price gains appear to be the product of the increase in
“Cash sales are often indicative of investor behavior so the concern is that home price increases are being driven more through speculative buying than from increasing demand,” says Fitch analyst Stefan Hilts.
Most of the markets where prices are frothiest are in California. Prices in San Francisco have gone up over 20% year-over-year. Much of coastal California is believed to be more than 20% overvalued, according to Fitch’s models. Other California cities nearing bubble-year peaks include San Jose, Oakland, San Diego and Los Angeles.
However, prices have rebounded in the past year on an average of 20% in the 10 cities that saw the largest decline in home prices from peak to crash. Nearly all of this growth is seen as sustainable, says Fitch.
One mortgage banker is not convinced by Fitch’s data. “All real estate is local, and I doubt we are overvalued all that much outside of a few markets like Washington, Manhattan, and the hot West Coast markets. In the judicial [foreclosure] states (primarily in the Northeast) we have yet to see any sort of meaningful rebound in prices,” says Brent Nyitray, the director of capital markets at iServe Residential Lending.
