No Bubble Here: Home Prices ‘Look Undervalued’

Real estate portal, Trulia, announced on its blog this week that the prices of homes in 83 out of 100 metro areas “look undervalued,” meaning that the country isn’t headed for another housing bubble, despite fears over rising prices.

The company released the findings in their 4Q “Bubble Watch” report, which measures price-to-income ratios, the price-to-rent ratio, and prices relative to long term trends using multiple data sources. Trulia estimated that national home prices were at least 4 percent undervalued.

“To put this in perspective, prices were as much as 39 percent overvalued in 2006 Q1, at the height of last decade’s bubble, then dropped to being 15 percent undervalued in 2011 Q4,” wrote Jed Kolko, Trulia chief economist in the blog. “One quarter ago prices looked 6 percent undervalued; one year ago prices looked 13 percent undervalued.”

The most undervalued homes were in several Ohio and Florida markets, and the cities of Detroit and Las Vegas, though those areas have seen major gains over the past year. Orange County, Calif. and Los Angeles were considered the top two “overvalued” markets, by more than 12 percent.

“Unlike last decade, prices are slightly undervalued, construction is low and mortgage credit remains tight,” which is very different from the easy-lending environment seen in 2004, Kolko said. 

Source: Trulia

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