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America’s Top 5 Most Overvalued Housing Markets

Published on Tuesday - August 06, 2013

While the housing sector continues to take significant steps towards recovery, several large metropolitan areas are still experiencing a myriad of market fluctuations. Select geographical regions have trended towards pre-bubble price increases while others have become void of progression all together. Detroit remains one of the nation’s most depressed regions, as the average home price sits at a staggering $19,187. Conversely, several cities in the state of California have found themselves on the opposite end of the spectrum. According to Reltor.com, four of the five most overvalued housing markets in America reside within the boarders of the golden state.

A distinct lack of inventory has neglected to accommodate the growing demand for housing. As such, prospective homeowners have been forced to compete over individual properties, resulting in higher than expected prices. Rapid price increases, like those that have recently been witnessed in California, can result in a saturation of the market. Subsequently, continued prices gains may lead to overvalued housing markets.

To better understand those markets that have been subjected to over-appreciation, Forbes compiled a list of the five most overvalued markets in America. Using research data collected by Fitch Ratings, Forbes evaluated each individual market’s price trends against a set of common factors (unemployment rates, population growth, mortgage rates, etc). The results for America’s five most overvalued housing markets are as follows:

1.) San Diego, CA

As one of the hottest markets in the country, the average price of a San Diego home is approximately $167,840. San Diego has witnessed a year-over-year price increase of seven percent and a 50 percent increase over the last 15 years. According to Realtor.com, there are currently more than 2,800 properties within the San Diego city limits that accommodate the average price tag of $306,460. However, more than 8,200 homes have recently sold for more than $500,000.

2.) Washington, D.C.

Washington is currently the beneficiary of an average home price of $189,799. As a result, it has seen a four percent year-over-year increase. The recent jump in home prices represents a 54 percent increase since 1998. There are currently 1,700 homes for sale in D.C. that have an average asking price of more than $740,000. However, 2,800 homes have already sold at the average price of $590,000.

3.) Los Angeles, CA

No more than a few hours north of San Diego, Los Angeles has experienced similar rates of over-appreciation. Market trends have created an average home price around $184,000. The median price for a home in L.A. is representative of a nine percent year-over-year increase and a 57 percent jump since 1998. Realtor.com has identified more than 3,500 homes in L.A. that have an average list price of more than $291,000. In comparison, the city has seen more than 6,400 recent home sales, with properties selling at an average price of $675,000.

4.) San Francisco, CA

San Francisco has experienced significant appreciation with the current market conditions. The average median home price, as a result, is around $153,940. San Francisco real estate has experienced a significant increase over the previous 12 months, as the average home price has jumped 11 percent. Over the last 15 years, the median home price has increased by 41 percent. The Bay Area currently harbors more than 900 homes that have an average price tag of $375,000. However, more than 3,100 homes have already been sold for the average price of $1.1 million.

5.) San Jose, CA

As the most overvalued housing market in the United States, San Jose’s appreciation rate maybe attributed to soaring job growth in the tech sector. Similarly, low inventory rates for this particular region have contributed to a 15 percent year-over-year price gain. The growth in San Jose over the last year was significant, especially when compared to the 44 percent increase over the last 15 years. Increases have generated an average asking price of approximately $915,000. However, the average home has already sold for nearly $624,000 in the area.

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