Four major US cities ring housing bubble alarm
- Home prices in Denver, Houston, Miami and the Washington, D.C., metro area are now considered overvalued.
- Some previously hot markets, such as San Francisco and the New York City metropolitan area, are cooling down.
- Low mortgage rates are keeping the market affordable from a monthly perspective, but affordability will likely become a much bigger challenge in the coming years
To determine if a market is overvalued, CoreLogic compares current prices to their long-run, sustainable levels, which are supported by local economic fundamentals like disposable income. An overvalued market is one in which home prices are at least 10 percent higher than that level. The rest of the top 10 markets are considered "at value," but none are undervalued, as prices are higher in all of them compared with a year ago.
"With no end to the escalation in sight, affordability is rapidly deteriorating nationally," said Frank Martell, president and CEO of CoreLogic. "While low mortgage rates are keeping the market affordable from a monthly payment perspective, affordability will likely become a much bigger challenge in the years ahead until the industry resolves the housing supply challenge."
Home prices rose 6.7 percent nationally in June compared with June 2016. That is a slightly higher annual gain than May. Prices are now up nearly 50 percent from the trough of the housing crash in March 2011.
. . .
“By any measure, real long-term interest rates are much too low and therefore unsustainable,” the former Federal Reserve chairman, 91, said in an interview. “When they move higher they are likely to move reasonably fast. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace.”
While the consensus of Wall Street forecasters is still for low rates to persist, Greenspan isn’t alone in warning they will break higher quickly as the era of global central-bank monetary accommodation ends. Deutsche Bank AG’s Binky Chadha says real Treasury yields sit far below where actual growth levels suggest they should be. Tom Porcelli, chief U.S. economist at RBC Capital Markets, says it’s only a matter of time before inflationary pressures hit the bond market.