House Prices Are Rising Fast, but Many Housing Markets Remain Undervalued, According to First American Real House Price Index - Seite 2
Most Top Markets Are Undervalued… With a Few Exceptions
“Of the top 50 markets tracked, only three markets, all located in California, were overvalued, meaning the median existing-home sale price exceeded house-buying power, in December. The market with the highest overvaluation was Los Angeles, where the median consumer house-buying power in December was just over $590,000, significantly below the median sale price of a home at approximately $729,000,” said Fleming. “San Francisco and San Jose were also overvalued, although to a lesser extent. However, all three overvalued markets are still significantly less overvalued than during the national housing boom peak in March 2006. Los Angeles, for example, was overvalued by approximately $286,000 in 2006, more than twice what it is today.
“The remaining 47 markets are actually undervalued, many significantly so. In fact, in December 2020, the average percentage difference between house-buying power and the median sale price of an existing home in these 47 markets was nearly 59 percent,” said Fleming. “In 2006, only 34 markets were considered undervalued, and the average percentage difference between house-buying power and the median sale price of an existing home was 39 percent. Even locally, this time it’s different."
Where Does the Housing Market Go from Here?
“The First American Data & Analytics preliminary nominal house price index anticipates continued strengthening of house price appreciation through February. As the housing market heads into the spring home buying season, the ongoing supply and demand imbalance all but assures more house price growth,” said Fleming. “During the housing bubble, rapid house price appreciation was not entirely supported by economic fundamentals, but in today’s housing market, nominal house price appreciation has been driven by a historic shortage of supply relative to demand and rate-driven surge in house-buying power. Many find it hard to believe, but housing is actually undervalued in most markets and the gap between house-buying power and sale prices indicates there’s room for further house price growth in the months to come.”
December 2020 Real House Price Index Highlights
- Real house prices increased 0.5 percent between November 2020 and December 2020.
- Real house prices declined 7.2 percent between December 2019 and December 2020.
- Consumer house-buying power, how much one can buy based on changes in income and interest rates, increased 1.1 percent between November 2020 and December 2020, and increased 21.1 percent year over year.
- Median household income has increased 6.2 percent since December 2019 and 72.9 percent since January 2000.
- Real house prices are 26.3 percent less expensive than in January 2000.
- While unadjusted house prices are now 20.7 percent above the housing boom peak in 2006, real, house-buying power-adjusted house prices remain 48.2 percent below their 2006 housing boom peak.
December 2020 Real House Price State Highlights