Top 10 Bubblicious Housing Markets in America

Source: Thinkstock

Source: Thinkstock

Worries about another housing bubble taking place appear to be unwarranted for most of the nation. Despite steady price gains and historically low interest rates, at least one gauge shows that the most overvalued housing markets are contained to just a few states.

In the third quarter, home prices in the United States were 3 percent undervalued compared with long-term fundamentals, according to the latest reading from Trulia’s Bubble Watch. In comparison, prices were 34 percent overvalued in 2006, then plunged to being 13 percent undervalued in 2012. In the second quarter of 2014, home prices were estimated to be 5 percent undervalued. Almost all of the most undervalued metros are in the Midwest and New England, led by Dayton and Cleveland, Ohio.

“The more prices are overvalued relative to fundamentals, the closer we are to a housing bubble — and the bigger the risk of a price crash,” explains Jed Kolko, Trulia’s chief economist. “Sharply rising prices aren’t necessarily a sign of a bubble. By definition, a bubble develops when prices look high relative to fundamentals. Bubble watching is as much an art as a science because there’s no definitive measure of fundamental value. To try to put numbers on it, we look at the price-to-income ratio, the price-to-rent ratio, and prices relative to their long-term trends.”

Trulia’s Bubble Watch finds that home prices look overvalued by 10 percent or more in only seven of the 100 largest metros, with five of those metro areas in California. Let’s take a look at the top 10 overvalued markets in America.

Source: Justin Sullivan/Getty Images

Justin Sullivan/Getty Images

10. Oakland, California

Home prices relative to fundamentals: +7%

Annual change in asking prices: 12.4%

Doug Pensinger/Getty Images

Doug Pensinger/Getty Images

9. Denver, Colorado

Home prices relative to fundamentals: +7%

Annual change in asking prices: 9.4%

Thinkstock

Source: Thinkstock

8. Houston, Texas

Home prices relative to fundamentals: +8%

Annual change in asking prices: 10.4%

Source: Thinkstock

Source: Thinkstock

7. San Jose, California

Home prices relative to fundamentals: +10%

Annual change in asking prices: 10.4%

(Photo credit: Saul Loebs/AFP/Getty Images)

Saul Loebs/AFP/Getty Images

6. Honolulu, Hawaii

Home prices relative to fundamentals: +10%

Annual change in asking prices: 6.7%

Source: David McNew/Getty Images

David McNew/Getty Images

5. Riverside — San Bernardino, California

Home prices relative to fundamentals: +11%

Annual change in asking prices: 13.8%

Source: Thinkstock

Source: Thinkstock

4. San Francisco, California

Home prices relative to fundamentals: +12%

Annual change in asking prices: 11.2%

David McNew/Getty Images

David McNew/Getty Images

3. Orange County, California

Home prices relative to fundamentals: +15%

Annual change in asking prices: 6%

David McNew/Getty Images

David McNew/Getty Images

2. Los Angeles, California

Home prices relative to fundamentals: +15%

Annual change in asking prices: 8.9%

Source: Thinkstock

Source: Thinkstock

1. Austin, Texas

Home prices relative to fundamentals: +19%

Annual change in asking prices: 11.9%

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