- The US housing market is tough for buyers right now – low supply has led to high demand and an increase in prices.
- Nationally, home prices rose by 7% from March 2017 to March 2018.
- But incomes haven’t increased at the same rate, leading to overvaluation in some of the country’s biggest housing markets, including Los Angeles, New York City, Denver, and Houston.
The US housing market is something of a seller’s paradise right now.
Ageing millennials are itching to become homeowners, but the supply of starter homes is at a historic low. Only 20% of the 1.2 million homes on the market are entry-level, according to Zillow, compared to 51% of for-sale homes priced in the most expensive tier.
In turn, prices are appreciating rapidly and incomes aren’t keeping pace. This leads to an overvalued market, meaning prices are above sustainable levels – and affordability is shot. The homes that do sell go quickly and often above asking price.
“What sets overvalued markets apart from others is that home prices are very high in relation to the income of local residents,” chief economist for CoreLogic, Dr. Frank Nothaft, told Business Insider. To return to balance, he said, “home-price growth has to slow, perhaps even stagnate or dip.”
But for now, mini-housing bubbles are forming in cities all over the US, which could coincide to form a national bubble like the one we saw in 2006 before the housing market crash.
There’s a sign of relief on the horizon, though. Mortgage interest rates are expected to rise in the next few months and demand – and thus home prices – will probably slow down, Nothaft said. But if you’re shopping for a home now, you’re likely to buy at a higher price than the place is worth in the long-term.
“Many home buyers probably are concerned if they are overpaying for a home. Getting an appraisal is one way to get validation that the home is worth what buyers think it is,” Nothaft said, adding that an appraisal is necessary whether you’re in an over-, under-, or fairly-valued market to ensure you’re getting your money’s worth.
CoreLogic analysed the 50 biggest markets by housing stock and found that 50% were overvalued, 36% were at value, and 14% were undervalued. Las Vegas, Denver, Los Angeles, Miami, New York City, Houston, and Washington, DC, are the country’s top overvalued markets, where home prices are 10% higher than a sustainable level.
San Francisco, Boston, and Chicago, by contrast, are fairly valued at their current levels. All of these cities have been in the same position since at least September, and they’re all experiencing steady price increases.
Nationally, home prices rose 7% from March 2017 to March 2018, according to CoreLogic’s Home Price Insights report. The median home for sale in the US is listed at $US268,500, higher than peak levels in 2006 before home prices took a nose dive and the housing bubble eventually burst.