Buzz
When you're in the market for a new home, it's important to understand the local housing market. In some areas, home prices increase at a faster rate than the economy, which leads to overvaluation. Forbes has compiled a list of the most overvalued and undervalued housing markets across the country.
Forbes analyzed 50 of the largest metro areas in the U.S. to determine these markets. They compared the economic growth of each area with the appreciation rates of homes. According to Forbes:
Forbes, using its quarterly Sustainable Home Price model, compiled a list of the top five most overvalued and undervalued housing markets. This model factors in local economic indicators such as income growth, unemployment rates, population changes, mortgage rates, rental prices, buyer demand, and inventory levels. When home prices increase faster than the economy, the market becomes overvalued. Conversely, when homes are priced below what the local economy can support, the market is undervalued.
In recent years, Texas has often been regarded as an affordable place to buy a home. However, Forbes notes that in certain parts of the state, housing prices are now rising faster than the area's economic growth:
Austin's gross metro product grew by 24% from February 2011 through the end of last year—a solid growth rate, though still lagging behind the 34% increase in home prices during the same period. Houston's situation is even more extreme: while its gross metro product rose by 23%, home prices surged by 43%. The gap between economic growth and housing prices is unlikely to narrow anytime soon in these Texas cities.
This doesn’t necessarily suggest an impending housing bubble in these areas. Instead, Forbes forecasts that housing prices may level off as the economy slows. Here’s the list of the five most undervalued and overvalued housing markets:
Overvalued
- - Austin, Texas
- Houston, Texas
- Phoenix, Arizona
- Riverside, California
- Miami, Florida
Undervalued
- - Detroit, Michigan
- Cleveland, Ohio
- Providence, Rhode Island
- Warren, Michigan
- Newark, New Jersey
It's important to note that the list is based solely on housing prices and economic growth, so 'value' here refers strictly to the current state of the housing market in each area. For more in-depth information, check out the full article on Forbes using the link below.
Photo by tkoch.
